UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, FOR THE QUARTERLY PERIOD ENDED
JULY 4, 1999
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ to __________.
Commission File Number
0-19746
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ECOSCIENCE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2912632
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10 Alvin Court, East Brunswick, New Jersey 08816
------------------------------------------------
(Address of principal executive offices)
(732) 432-8200
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No__.
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of August 16, 1999, the
issuer had outstanding 12,619,278 shares of common stock, par value $.01 per
share.
ECOSCIENCE CORPORATION AND SUBSIDIARIES
<PAGE>
PART I. FINANCIAL INFORMATION
EcoScience Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
July 4, 1999 January 3, 1999
------------ ---------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .............................................. $ 841 $ 1,095
Short-term investments ................................................. -- 127
Accounts receivable, less reserves of $737
at July 4, 1999 and $551 at January 3, 1999 ........................ 4,522 7,271
Assets held for sale ................................................... 1,590 1,911
Inventories ............................................................ 4,486 9,209
Other current assets ................................................... 483 1,212
--------- ---------
Total current assets ................................................. 11,922 20,825
--------- ---------
Property and equipment, net .............................................. 62,279 65,200
Intangible assets, net ................................................... 12,102 13,550
Other noncurrent assets .................................................. 2,268 2,289
--------- ---------
Total assets ......................................................... 88,571 101,864
========= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Short-term borrowings .................................................. $ 35,783 $ 37,080
Current maturities of long-term debt ................................... 46,051 47,557
Current obligations under capital leases ............................... 46 42
Accounts payable ....................................................... 11,424 11,102
Accrued expenses and other current liabilities ......................... 7,850 7,705
--------- ---------
Total current liabilities ............................................ 101,154 103,486
--------- ---------
Noncurrent liabilities:
Long-term debt, less current maturities ................................ 598 780
Obligations under capital leases ....................................... 322 338
Other long-term liabilities ............................................ 1,688 1,689
--------- ---------
Total liabilities .................................................... 103,762 106,293
--------- ---------
Minority interest ........................................................ 513 665
Commitments and contingencies ............................................ -- --
Stockholders' deficit:
Preferred stock, $0.01 par value, 10,000,000 shares authorized;
none issued and outstanding ....................................... -- --
Common stock, $0.01 par value, 100,000,000 shares authorized;
12,619,278 issued and outstanding at July 4, 1999 and
January 3, 1999 ................................................... 126 126
Additional paid-in-capital ............................................. 55,574 55,574
Accumulated deficit .................................................... (71,392) (60,706)
Accumulated other comprehensive loss ................................... (12) (88)
--------- ---------
Total stockholders' deficit .......................................... (15,704) (5,094)
--------- ---------
Total liabilities and stockholders' deficit .............................. 88,571 101,864
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
EcoScience Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Three Twenty-six Six
Weeks Ended Months Ended Weeks Ended Months Ended
July 4, 1999 June 30, 1998 July 4, 1999 June 30, 1998
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net revenues .............................. $ 14,432 $ 16,051 $ 32,696 $ 28,342
Cost of revenues .......................... 18,518 19,181 31,357 27,174
-------- -------- -------- --------
Gross profit .............................. (4,086) (3,130) 1,339 1,168
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative ..... 3,055 3,433 6,568 6,112
Research and development ................ 91 158 208 263
Impairment charge ....................... 654 -- 654 --
-------- -------- -------- --------
Total operating expenses ............ 3,800 3,591 7,430 6,375
-------- -------- -------- --------
Operating loss ............................ (7,886) (6,721) (6,091) (5,207)
-------- -------- -------- --------
Other (expense) income:
Interest, net ........................... (2,421) (1,353) (5,092) (2,448)
Other, net .............................. 263 (349) 350 (249)
-------- -------- -------- --------
Total other expense, net ............ (2,158) (1,702) (4,742) (2,697)
-------- -------- -------- --------
Loss before taxes and minority interest ... (10,044) (8,423) (10,833) (7,904)
Provision for income taxes ................ 2 -- 5 --
-------- -------- -------- --------
Loss before minority interest ............. (10,046) (8,423) (10,838) (7,904)
Minority interest ......................... 90 4,768 152 4,347
-------- -------- -------- --------
Net loss .................................. $ (9,956) $ (3,655) $(10,686) $ (3,557)
======== ======== ======== ========
Loss per share:
Basic:
Loss per share ............................ ($ 0.79) ($ 0.31) ($ 0.85) ($ 0.31)
======== ======== ======== ========
Weighted average basic shares outstanding . 12,619 11,618 12,619 11,618
======== ======== ======== ========
Diluted:
Loss per share ............................ ($ 0.79) ($ 0.31) ($ 0.85) ($ 0.31)
======== ======== ======== ========
Weighted average diluted shares outstanding 12,619 11,618 12,619 11,618
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
EcoScience Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Six
Weeks Ended Months Ended
July 4, 1999 June 30, 1998
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... ($10,686) ($ 3,557)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization .............................. 3,172 2,325
Minority interest in limited partnerships .................. (152) (4,347)
Foreign exchange (gain) loss ............................... (33) 70
Loss on sales of assets .................................... 7 --
Impairment charge .......................................... 654 --
Changes in current assets and liabilities:
Accounts receivable, net .............................. 2,390 (1,901)
Inventories ........................................... 4,425 1,717
Other current assets .................................. 641 (25)
Other noncurrent assets ............................... (237) 137
Accounts payable and accrued expenses ................. 720 4,104
Other noncurrent liabilities .......................... (1) 1,074
-------- --------
Net cash provided by (used in) operating activities: ...... 900 (403)
-------- --------
Cash flows from investment activities:
Purchases of property and equipment ............................... (661) (11,823)
Proceeds from sale of assets ...................................... 2,266 --
Release of restricted cash ........................................ -- 750
Proceeds from sale of short-term investments ...................... 127 --
-------- --------
Net cash provided by (used in) investing activities ...... 1,732 (11,073)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of stock ................................... -- 1
Proceeds from long-term debt ...................................... -- 9,993
Net (payment) borrowings under line of credit ..................... (1,297) 1,754
Payments on long-term debt and capital leases ..................... (1,665) (1,406)
Debt issue cost ................................................... -- (10)
S Corp stockholder distributions .................................. -- (110)
-------- --------
Net cash (used in) provided by financing activities ...... (2,962) 10,222
-------- --------
Effects of exchange rates on cash balances ........................ 76 --
Decrease in cash and cash equivalents ................................. (254) (1,254)
Cash and cash equivalents at beginning of period ...................... 1,095 2,443
-------- --------
Cash and cash equivalents at end of period ............................ $ 841 $ 1,189
======== ========
Total unrestricted and restricted cash, cash equivalents and short-term
investments at end of period .................................. $ 841 $ 4,222
======== ========
Supplemental cash flow information
Cash paid for:
Interest .............................................................. 3,739 1,867
Income taxes .......................................................... 5 --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 4, 1999 and June 30, 1998
(in thousands, except share data)
(UNAUDITED)
1. Operations
EcoScience Corporation ("EcoScience") and its wholly owned subsidiaries
(collectively, the "Company"), Agro Power Development, Inc. and its subsidiaries
and consolidated limited partnerships (collectively "APD"), Agro Dynamics, Inc.
and Agro Dynamics Canada Inc. (collectively, "AGRO") and EcoScience Produce
Systems Corp. ("EPSC") are primarily engaged in the production, marketing and
sale of premium grade tomatoes grown in intensive greenhouse facilities. In
addition, the Company markets, sells, develops and commercializes products for
the agricultural and biological industries.
The Company has suffered losses resulting in an accumulated deficit of $71,392
as of July 4, 1999. The Company continues to be in violation of certain
technical financial covenants under various debt agreements as of July 4, 1999,
which has resulted in approximately $42,847 of debt being classified as current
in the accompanying July 4, 1999 balance sheet which otherwise would have been
classified as long-term and default interest of $1,192. This along with the note
issued on December 30, 1998, in connection with the acquisition of certain
minority interests in consolidated limited partnerships, has resulted in
significant negative working capital. Management's plan is focused on improving
the gross profit of all greenhouse operations as a result of greater production
volumes, sizing and efficiency through a full cropping cycle at each greenhouse
facility.
The Company believes that its $841 of cash and cash equivalents as of July 4,
1999, along with revenues from product sales, will be sufficient to fund the
Company's working capital needs, planned capital expenditures, current
acquisitions and to service its indebtedness through July 5, 2000, provided that
the Company can resolve its near term cash flow problems by raising additional
capital and refinance its $21,600 aggregate principal amount of promissory notes
issued on December 30, 1998 and March 15, 1999 that are due on August 31, 1999.
On June 29, 1999, AGRO and EPSC entered into a new revolving loan agreement with
Century Business Credit Corporation for borrowings of up to $4,000 secured by
eligible accounts receivable and inventory, as defined. This agreement, which
has an initial two-year term, replaces a $3,000 revolving credit facility with
Silicon Valley Bank.
In July 1999, the Company entered into a commitment letter with its senior
lender, CoBank, ACB ("CoBank"), which contemplates that CoBank will restructure
the Company's existing $58,900 term facility and provide a new $8,400 working
capital line of credit, subject to certain conditions, including the
restructuring of the $21,600 of indebtedness that becomes due on August 31,
1999. In August 1999, the Company entered into a letter of intent to exchange
the notes representing the $21,600 of indebtedness for preferred stock. See note
3 below.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal course of
business. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
2. Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared
by the Company and reflect all adjustments, consisting of only normal recurring
adjustments, which are, in the opinion of management, necessary for a fair
presentation of financial results for the twenty-six weeks ended July 4, 1999
and the six months ended June 30, 1998, in accordance with generally accepted
accounting principles for interim financial reporting and pursuant to Article 10
of Regulation S-X. Certain information and footnote disclosures normally
included in the Company's annual audited consolidated financial statements have
been condensed or omitted pursuant to such rules and regulations.
The results of operations for the twenty-six weeks ended July 4, 1999 and the
six months ended June 30, 1998 are not necessarily indicative of the results of
operations to be expected for a full fiscal year. These interim consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements for the transition period ended
5
<PAGE>
January 3, 1999, which are included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
The consolidated financial statements give retroactive effect to the merger with
APD that occurred on September 30, 1998, which was accounted for as a pooling of
interests, and a one for five reverse stock split, effective September 30, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and disclosures of contingent assets and
liabilities as of the dates of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
3. Debt
On June 29, 1999, AGRO and EPSC entered into a new revolving loan agreement with
Century Business Credit Corporation for borrowings of up to $4,000 secured by
eligible accounts receivable and inventory, as defined. Borrowings under the
facility bear interest at a rate per annum equal to the greater of (1) 7% or (2)
the prime rate plus 2.75%. This agreement, which has an initial two-year term,
replaces a $3,000 revolving credit facility with Silicon Valley Bank.
In July 1999, the Company signed a commitment letter with its senior lender,
CoBank which contemplates that CoBank will restructure the Company's existing
$58,900 term facility and provide a new $8,400 working capital line of credit,
subject to certain conditions, including the restructuring of the Company's
$21,600 of indebtedness to Cogentrix Energy, Inc. ("Cogentrix") that becomes due
on August 31, 1999 and the negotiation and execution of final loan documents.
Approximately $2,400 of the proposed line of credit will be used to pay past due
interest to CoBank and the balance will be used for working capital purposes.
The proposed maturity date of the term facility is two years with a two year
extension if certain conditions are satisfied. The commitment letter provides
that the line of credit will mature in one year with the option to request a one
year extension. The proposed interest rate is the CoBank National Variable Rate
plus 2%. The commitment letter provides that principal under the term facility
will be payable quarterly in the amount of $5,000 per year.
On August 13, 1999, the Company entered into a letter of intent ("LOI") with
Cogentrix which provides that the $21,600 of notes plus all accrued and unpaid
interest thereon and a promissory note of APD payable to Cogentrix dated May 10,
1997 in the amount of $894 will be exchanged for shares of Class A Convertible
Preferred Stock of EcoScience ("Class A") and Class B Convertible Preferred
Stock of EcoScience ("Class B").
The LOI provides that Cogentrix will be issued 7,950,000 shares of Class A with
a liquidation preference of $2.00 per share and a cumulative dividend of 5% per
year, payable annually to the extent of the Company exceeding a specified level
of Earnings before interest, taxes and depreciation ("EBITDA"). The shares will
be mandatorily redeemed at liquidation preference plus accumulated and unpaid
dividends on each anniversary of the date of issuance in an amount exceeding a
specified level of EBITDA. The Class A shares may also be redeemed at the option
of Cogentrix at liquidation preference plus accumulated and unpaid dividends
beginning on each anniversary of the date of issuance commencing in 2003 and
ending in 2007. The maximum number of Class A shares that may be so redeemed in
any one year shall not exceed 1,590,000 minus the number of Class A shares the
Company must and has redeemed in the preceding year (or since issuance in the
case of 2003). If the Company fails to redeem the Class A shares, Cogentrix may
convert any or all of the Class A shares to common stock of the Company at a
conversion rate equal to $2 divided by the average closing price for EcoScience
Common Stock for the 15 business days prior to the date of issuance of the Class
A shares, excluding the highest and lowest closing price.
The LOI provides that Cogentrix will be issued 333,333 shares of Class B with a
liquidation preference of $20.00 per share. The shares will not be redeemable
and will not pay or accrue a dividend. The Class B shares are convertible on a
one for one share basis to shares of common stock of the Company on payment of a
conversion price of $5 per share on June 1, 2008.
Both Class A and Class B will be senior to all classes of capital stock of the
Company with respect to dividends, liquidation preference and redemption rights,
have no voting rights except in certain limited events, may not be transferred,
except with the written consent of the Company. The Common Stock issuable upon
the conversion of the Class B will be subject to certain resale restrictions.
No assurance can be given that the proposed restructurings of the Company's
indebtedness to CoBank and Cogentrix will be completed.
6
<PAGE>
4. Sale of assets
On February 1, 1999, the Company's postharvest equipment division of its wholly
owned subsidiary AGRO, which was the exclusive distributor in North America for
Aweta B.V.'s sorting and grading equipment, was sold to Autoline, Inc. Autoline
Inc. and Aweta B.V. are both wholly owned subsidiaries of FPS Food Processing
Systems of Holland. Sales of this division were $3,532 in the period ended
January 3, 1999 and $3,557, $4,967 and $2,830 in the fiscal years ended June 30,
1998, 1997 and 1996, respectively. The Company concluded that the long term
outlook of the postharvest equipment distribution business was no longer
consistent with its future strategic direction. This transaction did not result
in a material gain or loss and will not have a material impact on the Company's
financial position or results of operations.
On June 10, 1999 the Company's 12 acre greenhouse facility in Mount Carmel,
Pennsylvania was sold to Mount Carmel Greenhouses, LLC. The Company received
$2,000, of which $731 was used to pay off all debt related to the facility. The
transaction resulted in a gain on sale of $150, which has been included in other
income.
On July 7, 1999 the Company signed a letter of intent regarding the sale of
substantially all of the assets of EPSC, excluding EPSC's BioSave(R)
biofungicide product. The purchase price offered is $1,000 plus net working
capital at the time of closing. The Company has reclassed EPSC's $1,590 of
accounts receivable, inventory, fixed assets and current liabilities as assets
held for sale. The Company's long term assets, principally property and
equipment and goodwill, were written down to the proposed sales price. An
impairment charge of $654 was recorded in the twenty-six weeks ended July 4,
1999, related to the Company's proposed sale of EPSC. Net revenues of EPSC for
the thirteen weeks and twenty-six weeks ended July 4, 1999 were $484 and $899
and for the three and six months ended June 30, 1998 were $800 and $1,753,
respectively.
5. Net loss per share
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share," which requires presentation of both basic and diluted
earnings per share in the Consolidated Statements of Operations. Basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share gives effect to all potentially dilutive
common shares that were outstanding during the period.
The following table sets forth a reconciliation of weighted average common
shares outstanding to the weighted average common shares assuming dilution:
<TABLE>
<CAPTION>
Thirteen Three Twenty-six Six
Weeks Ended Months Ended Weeks Ended Months Ended
July 4, 1999 June 30, 1998 July 4, 1999 June 30, 1998
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 12,619 11,618 12,619 11,618
Dilutive effect of common shares issuable(1) - - - -
============== =============== =============== ===============
Weighted average common shares outstanding
assuming dilution 12,619 11,618 12,619 11,618
============== =============== =============== ===============
</TABLE>
(1) Common stock purchase warrants and stock options at July 4, 1999 and June
30, 1998 to purchase 357,621 and 281,491 shares, respectively, were not
included in the computation of earnings per share assuming dilution as
their effect would be anti-dilutive.
6. Comprehensive income
Effective January 3, 1999, the Company adopted the provisions of Statement No.
130, "Reporting Comprehensive Income", which modifies the financial statement
presentation of comprehensive income and its components.
7
<PAGE>
Comprehensive income, representing all changes in stockholders' equity during
the period other than changes resulting from the Company's stock and dividends.
Comprehensive income is as follows:
<TABLE>
<CAPTION>
Thirteen Three Twenty-six Six
Weeks Ended Months Ended Weeks Ended Months Ended
July 4, 1999 June 30, 1998 July 4, 1999 June 30, 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net loss ($9,956) ($3,655) ($10,686) ($3,557)
Other comprehensive gain, net of taxes
Foreign currency translation adjustments 41 - 76 -
Net unrealized loss on securities available for
sale 2 4 - 1
-------------- -------------- -------------- --------------
Other comprehensive gain 43 4 76 1
-------------- -------------- -------------- --------------
Comprehensive loss ($9,913) ($3,651) ($10,610) ($3,556)
============== ============== ============== ==============
</TABLE>
7. Segment and geographic information
The Company has two reportable segments: greenhouse tomatoes and biological and
agricultural products. The greenhouse tomatoes segment operates seven greenhouse
facilities in the United States, representing approximately 190 acres of growing
capacity. Through these facilities, the Company produces, harvests, packages and
distributes premium hydroponic vine-ripened tomatoes. The tomatoes are marketed
under the Village Farms(R) and Home Choice(TM) brandnames and sold to retail
supermarket chains, dedicated wholesalers, distributors and food service clients
throughout the United States.
The biological and agricultural products segment distributes various products
under written distribution agreements and relations with specific vendors. The
Company's biological and agricultural products include (1) growing medium
products and computerized environmental and irrigational control systems; (2)
postharvest coating products and (3) biological pest control products.
The Company's reportable segments are strategic business units that offer
different products. The Company is not dependent on any single customer for its
net revenues.
<TABLE>
<CAPTION>
Thirteen Three Twenty-six Six
Weeks Ended Months Ended Weeks Ended Months Ended
Company data by operating segment July 4, 1999 June 30, 1998 July 4, 1999 June 30, 1998
- --------------------------------- --------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net revenues
Greenhouse tomatoes $11,933 $12,840 $27,092 $20,215
Biological and agricultural products 2,499 3,211 5,604 8,127
--------------- ---------------- -------------- ---------------
Total 14,432 $16,051 $32,696 $28,342
=============== ================ ============== ===============
Operating loss
Greenhouse tomatoes ($6,956) ($6,193) ($5,019) ($4,573)
Biological and agricultural products (930) (528) (1,072) (634)
--------------- ---------------- -------------- ---------------
Total ($7,886) ($6,721) ($6,091) ($5,207)
=============== ================ ============== ================
Company data by geographic segments
- -----------------------------------
Net revenues
United States $13,521 $15,055 $30,801 $25,050
Canada 911 996 1,895 3,292
--------------- ---------------- -------------- ---------------
Total $14,432 $16,051 $32,696 $28,342
=============== ================ ============= ===============
</TABLE>
8
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(in thousands, except share data)
EcoScience Corporation ("EcoScience") and its wholly owned subsidiaries
(collectively, the "Company"), Agro Power Development, Inc. and its subsidiaries
and consolidated limited partnerships (collectively "APD"), Agro Dynamics, Inc.
and Agro Dynamics Canada Inc. (collectively, "AGRO") and EcoScience Produce
Systems Corp. ("EPSC") are primarily engaged in the production, marketing and
sale of premium grade tomatoes grown in intensive greenhouse facilities. In
addition, the Company markets, sells, develops and commercializes products for
the agricultural and biological industries.
Results of Operations for the thirteen weeks ended July 4, 1999 and the three
months ended June 30, 1998
The Company's two reportable segments are comprised of (1) greenhouse tomatoes
and (2) biological and agricultural products.
The Company's net revenues decreased by $1,619 or 10% to $14,432 for the
thirteen weeks ended July 4, 1999 from $16,051 for the three months ended June
30, 1998. This decrease was due to decreases in product sales in the greenhouse
tomato market of $907 and decreases in the biological and agricultural products
market of $712.
The following table sets forth the Company's net revenues by segment for the
thirteen weeks ended July 4, 1999 and the three months ended June 30, 1998:
<TABLE>
<CAPTION>
Thirteen Three
Weeks Ended Months Ended
July 4, 1999 June 30, 1998 Change
---------------- --------------- ------------
<S> <C> <C> <C>
Greenhouse tomatoes $11,933 $12,840 ($907)
Biological and Agricultural Products 2,499 3,211 (712)
---------------- --------------- -----------
Total $14,432 $16,051 ($1,619)
================ =============== ===========
</TABLE>
Net revenue decreases for the greenhouse tomato market were primarily due to
weak market pricing. The competition in the tomato industry has increased
significantly due to increased supply that has resulted from the additional
acreage that has been added during recent years as well as increased volume from
imported product.
Product sale decreases for the biological and agricultural products market were
primarily due to the discontinuance of its packing insert sales in Canada and
decreased coatings sales. Sales of packing inserts were $0 for the thirteen
weeks ended July 4, 1999 and $254 for the three months ended June 30, 1998. The
Company's sales of coating products decreased $316 or 40% to $484 for the
thirteen weeks ended July 4, 1999 from $800 for the three months ended June 30,
1999. These products are primarily sold to citrus growers in California which
were adversely affected by a winter freeze.
Cost of revenues decreased $663 or 3% to $18,518 for the thirteen weeks ended
July 4, 1999 from $19,181 for the three months ended June 30, 1998, primarily
due to a decrease in net revenues.
Gross profit on net revenues decreased $956 or 31% to ($4,086) for the thirteen
weeks ended July 4, 1999 from a gross profit of ($3,130) for the three months
ended June 30, 1998. Gross profit percentage on net revenues decreased 8% to
(28%) for the thirteen weeks ended July 4, 1999 from (20%) for the three months
ended June 30, 1998. Both gross profit on net revenues and gross profit
percentage on net revenues decreased primarily as a result of weak market
pricing in the tomato segment and less than anticipated production yields that
lead to an increase in cost of sales.
Selling, general and administrative expenses decreased $378 or 11% to $3,055 for
the thirteen weeks ended July 4, 1999 from $3,433 for the three months ended
June 30, 1998, primarily due to decreased administrative costs, partially offset
by increased amortization of goodwill of $150, resulting from the Company's
acquisition of Cogentrix's 50% ownership in four of the Company's greenhouse
facilities.
9
<PAGE>
Research and development expenses decreased $67 or 42% to $91 for the thirteen
weeks ended July 4, 1999 from $158 for the three months ended June 30, 1998, due
primarily to a decrease in personnel expenses.
An impairment charge of $654 was recorded in the thirteen weeks ended July 4,
1999, related to the Company's proposed sale of EPSC. The Company's long term
assets, principally property and equipment and goodwill, were written down to
the proposed sales price. The Company has entered into a letter of intent to
sell substantially all of the assets of EPSC, except the BioSave biofungicide
business, for $1,000 plus net working capital at the time of closing.
Operating loss increased $1,165 or 17% to $7,886 for the thirteen weeks ended
July 4, 1999 compared to $6,721 for the three months ended June 30, 1998. The
decrease in operating income resulted primarily from a decrease of $956 in gross
profit for the thirteen weeks ended July 4, 1999, and a $209 increase in
operating expenses.
Other expenses increased by $456 to $2,158 for the thirteen weeks ended July 4,
1999, compared to $1,702 the three months ended June 30, 1998, primarily due to
increased interest expenses. Interest expense, net, increased by $1,068 for the
thirteen weeks ended July 4, 1999 compared to the three months ended June 30,
1998 due to $590 in interest incurred on the $21,600 in promissory notes issued
in connection with the acquisition of all of the outstanding capital stock of
certain corporations which were partners in four of the Company's greenhouse
operations, $605 in default interest recorded on the CoBank facility due to
certain technical defaults and increased indebtedness incurred in connection
with the development of the greenhouse facilities added in 1998.
The Company's net loss increased $6,301 or $0.48 per basic and diluted share to
a net loss of $9,956 or $0.79 per diluted share for the thirteen weeks ended
July 4, 1999 compared to net loss of $3,655 or $0.31 per diluted share for the
three months ended June 30, 1998.
The Company's EBITDA decreased $5,177 to ($5,956) for the thirteen weeks ended
July 4, 1999 from ($779) for the three months ended June 30, 1998. EBITDA is net
income (loss) excluding interest income, interest expense, income taxes,
depreciation and amortization expense. While EBITDA should not be construed as a
substitute for income (loss) from operations, net income (loss) or cash flows
from operating activities in analyzing the Company's operating performance,
financial condition or cash flows, the Company is reporting EBITDA because it is
commonly used by certain users of the Company's financial statements to analyze
and compare companies on the basis of operating performance, leverage and
liquidity and to determine a company's ability to service debt.
Results of Operations for the twenty-six weeks ended July 4, 1999 and the six
months ended June 30, 1998
The Company's net revenues increased by $4,354 or 15% to $32,696 for the
twenty-six weeks ended July 4, 1999 from $28,342 for the six months ended June
30, 1998. This increase was primarily due to the increases in product sales in
the greenhouse tomato market of $6,877 partially offset by decreases in the
biological and agricultural products market of $2,523.
The following table sets forth the Company's net revenues by segment for the
twenty-six weeks ended July 4, 1999 and the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Twenty-six Six
Weeks Ended Months Ended
July 4, 1999 June 30, 1998 Change
---------------- ---------------- ------------
<S> <C> <C> <C>
Tomatoes $27,092 $20,215 $6,877
Biological and Agricultural Products 5,604 8,127 (2,523)
---------------- ---------------- ------------
Total $32,696 $28,342 $4,354
================ ================ ============
</TABLE>
Net revenue increases for the greenhouse tomato market were primarily due to
increased capacity offset by weak market pricing. Two of the Company's
greenhouse facilities representing 60 acres were not in full production for the
six months ended June 30, 1998.
Net revenue decreases for the biological and agricultural products market were
primarily due to the sale of its postharvest equipment division on February 2,
1999, the discontinuance of its packing insert sales in Canada and decreased
coating sales. Sales of the postharvest equipment division decreased $1,109 or
76% to $344 for the twenty-six weeks ended July 4, 1999 from $1,453 for the six
months ended June 30, 1998. Sales of packing inserts decreased $508 to $0 for
the twenty-six
10
<PAGE>
weeks ended July 4, 1999 compared to $508 for the six months ended June 30,
1998. The Company's sales of coating products decreased $854 or 49% to $899 for
the twenty-six weeks ended July 4, 1999 from $1,753 for the six months ended
June 30, 1998. These coating products are primarily sold to citrus growers in
California which were adversely affected by a winter freeze.
Cost of revenues increased $4,183 or 15% to $31,357 for the twenty-six weeks
ended July 4, 1999 from $27,174 for the six months ended June 30, 1998,
primarily due to net revenue increases.
Gross profit on net revenues increased $171 or 15% to $1,339 for the twenty-six
weeks ended July 4, 1999 from a gross profit of $1,168 for the six months ended
June 30, 1998, primarily as a result of the increase in net revenues from the
tomato segment. Gross profit percentage on net revenues remained the same at 4%
for the twenty-six weeks ended July 4, 1999 and the six months ended June 30,
1998.
Selling, general and administrative expenses increased $456 or 7% to $6,568 for
the twenty-six weeks ended July 4, 1999 from $6,112 for the six months ended
June 30, 1998, primarily due to increased amortization of goodwill of $300,
resulting from the Company's acquisition of Cogentrix's 50% ownership of four of
the Company's greenhouse facilities and increased expenses attributable to the
Company's four new greenhouse facilities, and the expansion of the Company's
sales, marketing, finance and greenhouse management operations.
Research and development expenses decreased $55 or 21% to $208 for the
twenty-six weeks ended July 4, 1999 from $263 for the six months ended June 30,
1998, due primarily to a decrease in personnel expenses.
An impairment charge of $654 was recorded in the twenty-six weeks ended July 4,
1999, related to the Company's proposed sale of EPSC. The Company's long term
assets, principally property and equipment and goodwill, were written down to
the proposed sales price.
Operating loss increased $884 or 17% to $6,091 for the twenty-six weeks ended
July 4, 1999 compared to $5,207 for the six months ended June 30, 1998. The
decrease in operating income resulted primarily from an increase of $1,055 in
operating expenses for the twenty-six weeks ended July 4, 1999, partially offset
by a $171 increase in gross profit.
Other expenses increased by $2,045 to $4,742 for the twenty-six weeks ended July
4, 1999, compared to $2,697 for the six months ended June 30, 1998, primarily
due to increased interest expenses. Interest expense, net, increased by $2,644
for the twenty-six weeks ended July 4, 1999 compared to the six months ended
June 30, 1998 due to $1,215 in interest incurred on the $21,600 of promissory
notes issued in connection with the acquisition of all of the outstanding
capital stock of certain corporations that were partners in four of the
Company's greenhouse operations, $1,192 in default interest recorded on the
CoBank facility due to certain technical defaults and increased indebtedness
incurred in connection with the development of the greenhouse facilities added
in 1998.
The Company's net loss increased $7,129 or $0.54 per basic and diluted share to
a net loss of $10,686 or $0.85 per diluted share for the twenty-six weeks ended
July 4, 1999 compared to net loss of $3,557 or $0.31 per diluted share for the
six months ended June 30, 1998.
The Company's EBITDA decreased $3,633 to ($2,417) for the twenty-six weeks ended
July 4, 1999 from $1,216 for the six months ended June 30, 1998. EBITDA is net
income (loss) excluding interest income, interest expense, depreciation and
amortization expense.
Liquidity and Capital Resources
The Company's operations have been funded through revenues from product sales,
public and private placements of its equity securities, bank loans and lease
financings, licensing, collaborative research and development arrangements,
investment income and the sale of certain assets.
The Company continues to experience a significant liquidity shortfall primarily
due to (i) the production start-up issues encountered at and crop cycle
adjustments of the approximate 127 acres of additional greenhouse production
capacity in its greenhouse tomato segment added during 1998 and (ii) the need to
refinance its $21,600 aggregate principal amount of promissory notes issued to
Cogentrix Energy, Inc. ("Cogentrix") that becomes due on August 31, 1999. In
addition, the Company is in default of certain technical financial covenants
with its lender CoBank, ACB ("CoBank").
11
<PAGE>
As a result of the Company's non-compliance with a financial covenant contained
in its $60,000 credit facility with CoBank and certain payment defaults which
were subsequently cured, CoBank has imposed a default rate of interest which is
equal to 4% above the base rate. As of July 4, 1999, $58,900 of indebtedness was
outstanding under the Company's credit facility with CoBank. On July 14, 1999
the Company signed a commitment letter with CoBank wherein CoBank has agreed to
restructure the current $58,900 credit facility as well as to provide a new
$8,400 working capital line of credit, subject to certain conditions including a
restructuring of the $21,600 debt to Cogentrix, discussions of which have been
previously disclosed.
On August 13, 1999, the Company signed a letter of intent ("LOI") with Cogentrix
which provides that the $21,600 of notes plus all accrued and unpaid interest
thereon and a promissory note of APD payable to Cogentrix dated May 10, 1997 in
the amount of $894 will be exchanged for shares of Class A Convertible Preferred
Stock of EcoScience ("Class A") and Class B Convertible Preferred Stock of
EcoScience ("Class B').
The LOI provides that Cogentrix will be issued 7,950,000 shares of Class A with
a liquidation preference of $2.00 per share and a cumulative dividend of 5% per
year, payable annually to the extent of the Company exceeding a specified level
of EBITDA. The shares will be mandatorily redeemed at liquidation preference
plus accumulated and unpaid dividends on each anniversary of the date of
issuance in an amount exceeding a specified level of EBITDA. The Class A shares
may also be redeemed at the option of Cogentrix at liquidation preference plus
accumulated and unpaid dividends beginning on each anniversary of the date of
issuance commencing in 2003 and ending in 2007. The maximum number of Class A
shares that may be so redeemed in any one year shall not exceed 1,590,000 minus
the number of Class A shares the Company must and has redeemed in the preceding
year (or since issuance in the case of 2003). If the Company fails to redeem the
Class A shares, Cogentrix may convert any or all of the Class A shares to common
stock of the Company at a conversion rate equal to $2 divided by the average
closing price for EcoScience Common Stock for the 15 business days prior to the
date of issuance of the Class A shares, excluding the highest and lowest closing
price.
The LOI provides that Cogentrix will be issued 333,333 shares of Class B at a
liquidation preference of $20.00 per share. The shares will not be redeemable
and do not pay or accrue a dividend. The Class B shares are convertible on a one
for one share basis to shares of common stock of the Company on payment of a
conversion price of $5 per share on June 1, 2008.
Both Class A and Class B will be senior to all classes of capital stock of the
Company with respect to dividends, liquidation preference and redemption rights,
have no voting rights except in certain limited events, may not be transferred,
except with the written consent of the Company. The Common Stock issuable upon
the closing of the Class A and Class B will be subject to certain resale
restrictions.
The Company's management has been in close contact with its lenders and major
suppliers, and the parties are working cooperatively together to manage this
cash flow shortfall. In July 1999, the company renegotiated one of its
greenhouse lease agreements which will result in an estimated annual savings of
$600. Although the Company's liquidity position is currently manageable, the
cash shortfall will remain until the completion of the proposed exchange of the
$21,600 aggregate principal amount of promissory notes issued to Cogentrix for
preferred stock, the restructure of the $60,000 credit facility with CoBank and
the closing of the new $8,400 working capital line of credit with CoBank. No
assurance can be given that the Company will be able to complete the
restructuring of the CoBank credit facility or the exchange of notes for
preferred stock or that the Company's creditors will not attempt to enforce
legal remedies available to them.
On June 29, 1999, AGRO and EPSC entered into a new revolving loan agreement with
Century Business Credit Corporation for borrowings of up to $4,000 secured by
eligible accounts receivable and inventory, as defined. Borrowings under the
facility bear interest at a rate per annum equal to the greater of (1) 7% or (2)
the prime rate plus 2.75%. This agreement, which has an initial two-year term,
replaces a $3,000 revolving credit facility with Silicon Valley Bank.
Cash and cash equivalents were $841 at July 4, 1999 compared to $1,095 at
January 3, 1999. Cash provided by operating activities totaled $900 for the
twenty-six weeks ended July 4, 1999 and principally consisted of a decrease in
inventory of $4,425, accounts receivable of $2,390 and depreciation and
amortization of $3,172, partially offset by a net loss of $10,686. Cash used in
financing activities totaled $2,962 for the twenty-six weeks ended July 4, 1999,
which consisted of payments of long-term debt of $1,665 and net payments under
lines of credit of $1,297. Cash provided by investment activities for the
twenty-six weeks ended July 4, 1999 totaled $1,732, which consisted principally
of the proceeds from sale of assets of $2,266, including the Company's
greenhouse facility in Mount Carmel, Pennsylvania. The Company's current
liabilities exceeded its current assets by $89,232 (which includes $42,847 of
senior debt classified as current, which otherwise would have been classified as
long-term had the Company not had certain technical defaults under its $60,000
credit facility) and its current ratio was 0.11 to 1, at July 4, 1999 compared
to 0.20 to 1, respectively, at January 3, 1999.
12
<PAGE>
Debt and capital leases decreased by $2,997 to $82,800 at July 4, 1999 compared
to $85,797 at January 3, 1999. The decrease was attributable to payments under
the Company's lines of credit and term loans.
The Company believes that its $841 of cash and cash equivalents as of July 4,
1999, along with revenues from product sales, will be sufficient to fund the
Company's working capital needs, planned capital expenditures, and to service
its indebtedness through July 5, 2000, provided that the Company can resolve its
short term cash flow shortfall by issuing preferred stock in exchange for the
$21,600 aggregate principal amount of promissory notes held by Cogentrix,
restructuring the $60,000 credit facility with CoBank and closing the new $8,400
working capital line of credit with CoBank. No assurance can be given that the
Company will be able to complete the refinancings, obtain an extension or
restructuring of the notes or that the Company's creditors will not attempt to
enforce legal remedies available to them.
Year 2000 Compliance
The following disclosure is a Year 2000-readiness disclosure statement pursuant
to the Year 2000 Readiness and Disclosure Act.
The Year 2000 presents the risk that information systems will be unable to
recognize and process date-sensitive information properly from and after
January1, 2000. To minimize or eliminate the effect of the Year 2000 risk on our
business systems and applications, we are continually identifying, evaluating,
implementing and testing changes to our computer systems, applications and
software necessary to achieve Year 2000 compliance. We implemented a Year 2000
initiative in May 1998 that has now been adopted throughout the Company. As part
of such initiative, we have selected a team of managers to identify, evaluate
and implement a plan to bring all of our critical business systems and
applications into Year 2000 compliance prior to December 31, 1999. The Year 2000
initiative consists of four phases: (i) identification of all critical business
and greenhouse systems (including irrigation systems and sorting, grading and
packing equipment) subject to Year 2000 risk (the "Identification Phase"); (ii)
assessment of such business systems and applications to determine the method of
correcting any Year 2000 problems (the "Assessment Phase"); (iii) implementing
the corrective measures (the "Implementation Phase"); and (iv) testing and
maintaining system compliance (the "Testing Phase"). We have substantially
completed the Identification and Assessment Phases and have identified and
assessed four areas of risk: (i) third party vendor software, such as business
and greenhouse applications (including irrigation systems and sorting, grading
and packing equipment), operating systems and special function software; (ii)
computer hardware components; (iii) electronic data transfer systems between us
and our customers; and (iv) embedded systems, such as phone switches, check
writers and alarm systems. Although no assurances can be made, we believe that
we have identified substantially all of our systems, applications and related
software that are subject to Year 2000 compliance risk and have either
implemented or initiated the implementation of a plan to correct such systems
that are not Year 2000 compliant. In addition, as part of its assessment process
we are developing contingency plans as necessary. However, we cannot directly
control the timing of certain Year 2000 compliant vendor products. Although we
have begun the Testing Phase, we do not anticipate completion of the Testing
Phase until sometime prior to December 1999.
We rely on third party service providers for services such as
telecommunications, internet service, utilities, components for our embedded and
other systems and other key services. Interruption of those services due to
Year2000 issues could have a material adverse impact on our operations. We have
initiated an evaluation of the status of such third party service providers'
efforts and to determine alternative and contingency requirements. While
approaches to reducing risks of interruption of business operations vary by
business unit, options include identification of alternative service providers
available to provide such services if a service provider fails to become
Year 2000 compliant within an acceptable timeframe prior to December 31, 1999.
The total cost of our Year 2000 compliance plan is anticipated to be $20.
Approximately $10 of these costs had been incurred through July 4, 1999, and we
expect to incur the balance of such costs to complete the compliance plan. We
have been expensing the costs to complete the compliance plan in accordance with
appropriate accounting policies. Variations from anticipated expenditures and
the effect on our future results of operations are not anticipated to be
material in any given year. However, if Year 2000 modifications and conversions
are not made including modifications by our third party service providers, or
are not completed in time, the Year 2000 problem could have a material impact on
our operations, cash flows and financial condition. At this time we believe the
most likely "worst case" scenario involves potential disruptions in our
operations as a result of the failure of services provided by third parties.
The estimates and conclusions herein are forward-looking statements and are
based on our best estimates of future events. Risks of completing the plan
include the availability of resources, the ability to discover and correct the
potential Year 2000
13
<PAGE>
sensitive problems which could have a serious impact on certain operations and
the ability of our service providers to bring their systems into Year 2000
compliance.
Quantitative and Qualitative Disclosure about Market Risk
There has been no material change in market risk since January 3, 1999.
Forward-looking Statements
This report contains "forward-looking statements" which are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that known and unknown risks, uncertainties and other
factors may cause actual results, performance or achievements of EcoScience to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Factors that might
cause such differences include EcoScience's risks and uncertainties related to
EcoScience's future profitability, ability to meet its capital needs, government
regulation, continued cooperation of the Company's creditors, competition,
market acceptance, year 2000 compliance and other factors described in Item 7A
and elsewhere in EcoScience's annual report on Form 10-K filed with the
Securities and Exchange Commission.
14
<PAGE>
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
The Company's wholly owned subsidiary, Agro Power Development, Inc. remains in
default of a covenant contained in its guaranty of a $60,000 credit facility
which required it to maintain a ratio of equity to senior debt of at least 25%.
As a result of this default, the lender has the right to accelerate the payment
of all amounts outstanding under the facility. The lender has imposed a default
rate of interest equal to 4% above the base rate and notified the Company that
no further advances will be made under the credit facility until the default is
cured.
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were voted upon at the Annual Meeting of Stockholders held
on May 24, 1999, and received the votes set forth below:
1. The following person nominated was elected to serve as a director and
received the number of votes set opposite his name:
For Withheld
--- --------
Thomas A. Montanti 9,404,289 7,182
2. A proposal to adopt the Company's 1999 Stock Option Plan received 9,350,958
votes FOR and 58,247 votes AGAINST, with 2,266 abstentions.
The terms of office of each of Michael A. DeGiglio, Albert W. Vanzeyst, David J.
Ryan and Heinz Wehner continued after the Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(i) Exhibits
10.119 Employment agreement between EcoScience Corporation and Kenneth S.
Hollander, dated June 1, 1999. (incorporated by reference to Exhibit 10.119 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-77959).
10.120 Extension agreement and related allonges to Cogentrix Energy, Inc.
promissory notes dated June 29, 1999.
10.121 Extension agreement and relate allonges to Cogentrix Energy, Inc.
promissory notes dated July 30, 1999.
10.122 First Amendment to Operating Agreement between Village Farms of Virginia,
Inc. and Greenhost, Inc.
10.123 Loan and Security Agreement between Century Business Credit Corporation
and Agro Dynamics, Inc. and EcoScience Produce Systems Corporation dated June
29, 1999.
27 Financial Data Schedule as of and for the Six Months Ended July 4, 1999
(ii) Reports on Form 8-K.
(a) June 29, 1999 - regarding the extension of the debt of Cogentrix,
refinancing of $3 million line of credit and the NASDAQ SmallCap Market
delisting notice.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ECOSCIENCE CORPORATION
Registrant
August 16, 1999 /s/ Kenneth S. Hollander
---------------------------------------
Kenneth S. Hollander
Senior Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
16
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ------- -------------------
10.119 Employment agreement between EcoScience Corporation and Kenneth S.
Hollander, dated June 1, 1999 (incorporated by reference to
Exhibit 10.119 to the Registrant's Registration Statement on Form
S-1, Registration No. 333-77959)
10.120 Extension agreement and related allonges to Cogentrix Energy, Inc.
promissory notes dated June 29, 1999.
10.121 Extension agreement and relate allonges to Cogentrix Energy, Inc.
promissory notes dated July 30, 1999.
10.122 First Amendment to Operating Agreement between Village Farms of
Virginia, Inc. and Greenhost, Inc.
10.123 Loan and Security Agreement between Century Business Credit
Corporation and Agro Dynamics, Inc. and EcoScience Produce Systems
Corporation dated June 29, 1999.
27 Financial Data Schedule as of and for the Six Months Ended July 4, 1999
17
EcoScience Corporation
10 Alvin Court
East Brunswick, New Jersey 08816
Reference is made to (i) the Stock Purchase Agreement ("Stock Purchase
Agreement") between Cogentrix Delaware Holdings, Inc ("CDHI") and Ecoscience
Corporation ("Ecoscience"), (ii) the promissory note of Ecoscience in favor of
CDHI dated December 30, 1998 in the principal amount of $20,600,000 (the
"Note"), (iii) the promissory note of Ecoscience in favor of CDHI dated March
15, 1999 in the principal amount of $1,000,000 (the "Extension Note") and (iv)
the Stock Pledge Agreement ("Pledge Agreement") dated as of December 30, 1998,
as amended, between Ecoscience and CDHI.
Ecoscience desires to extend the date on which the principal amounts of the
Note and the Extension Note are due and CDHI is willing to extend such payment
date on the terms and conditions set forth herein.
By its signature hereto, CDHI agrees that the (i) date for payment in one
installment together with all interest accrued on the Note shall be extended
from June 30, 1999 to July 31, 1999 and (ii) date for payment in one installment
together with all interest accrued on the Extension Note shall be extended from
June 30, 1999 to July 31, 1999. Each such extension shall be evidenced by the
execution and delivery of an Allonge to Promissory Note in the form attached
hereto; provided, that the failure of CDHI to attach an Allonge to the Note or
the Extension Note, as applicable, shall not affect the validity of the
extension of time for payment provided for herein.
CDHI expressly reserves all rights and remedies it may have with respect to
the Stock Purchase Agreement, the Pledge Agreement, the Note and the Extension
Note and, except for the extension of time provided for payment provided for
herein, no such right or remedy shall be deemed waived by CDHI.
<PAGE>
THIS LETTER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NORTH CAROLINA.
Sincerely yours,
COGENTRIX DELAWARE HOLDINGS, INC.
By:
-----------------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President - Finance
and Treasurer
Acknowledged and agreed
Ecoscience Corporation
By:
-----------------------
Name:
Title:
<PAGE>
ALLONGE
TO
PROMISSORY NOTE
ALLONGE to PROMISSORY NOTE ("Note"), dated December 30, 1998, of ECOSCIENCE
CORPORATION, a Delaware corporation, having its principal place of business at
10 Alvin Court, East Brunswick, New Jersey 08816 (the "Maker"), payable to the
order of COGENTRIX DELAWARE HOLDINGS, INC., a Delaware corporation, having its
principal place of business at 1105 North Market Street, Suite 1108, Wilmington,
DE 19801 (together with his successors and assigns, the "Holder).
The date for payment in one installment of the principal together with all
interest accrued on the Note is extended from June 30, 1999 to July 31, 1999.
COGENTRIX DELAWARE HOLDINGS, INC.
By:
------------------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President - Finance
and Treasurer
ECOSCIENCE CORPORATION
By:
------------------------------------
Name:
Title:
<PAGE>
ALLONGE
TO
PROMISSORY NOTE
ALLONGE to PROMISSORY NOTE ("Note"), dated March 15, 1999, of ECOSCIENCE
CORPORATION, a Delaware corporation, having its principal place of business at
10 Alvin Court, East Brunswick, New Jersey 08816 (the "Maker"), payable to the
order of COGENTRIX DELAWARE HOLDINGS, INC., a Delaware corporation, having its
principal place of business at 1105 North Market Street, Suite 1108, Wilmington,
DE 19801 (together with his successors and assigns, the "Holder).
The date for payment in one installment of the principal together with all
interest accrued on the Note is extended from June 30, 1999 to July 31, 1999.
COGENTRIX DELAWARE HOLDINGS, INC.
By:
------------------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President -
Finance and Treasurer
ECOSCIENCE CORPORATION
By:
------------------------------------
Name:
Title:
EcoScience Corporation
10 Alvin Court
East Brunswick, New Jersey 08816
Reference is made to (i) the Stock Purchase Agreement ("Stock Purchase
Agreement") between Cogentrix Delaware Holdings, Inc ("CDHI") and Ecoscience
Corporation ("Ecoscience"), (ii) the promissory note of Ecoscience in favor of
CDHI dated December 30, 1998 in the principal amount of $20,600,000 (the
"Note"), (iii) the promissory note of Ecoscience in favor of CDHI dated March
15, 1999 in the principal amount of $1,000,000 (the "Extension Note") and (iv)
the Stock Pledge Agreement ("Pledge Agreement") dated as of December 30, 1998,
as amended, between Ecoscience and CDHI.
Ecoscience desires to extend the date on which the principal amounts of the
Note and the Extension Note are due and CDHI is willing to extend such payment
date on the terms and conditions set forth herein.
By its signature hereto, CDHI agrees that the (i) date for payment in one
installment together with all interest accrued on the Note shall be extended
from July, 31 1999 to August 31, 1999 and (ii) date for payment in one
installment together with all interest accrued on the Extension Note shall be
extended from July 31, 1999 to August 31, 1999. Each such extension shall be
evidenced by the execution and delivery of an Allonge to Promissory Note in the
form attached hereto; provided, that the failure of CDHI to attach an Allonge to
the Note or the Extension Note, as applicable, shall not affect the validity of
the extension of time for payment provided for herein.
CDHI expressly reserves all rights and remedies it may have with respect to
the Stock Purchase Agreement, the Pledge Agreement, the Note and the Extension
Note and, except for the extension of time provided for payment provided for
herein, no such right or remedy shall be deemed waived by CDHI.
<PAGE>
THIS LETTER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NORTH CAROLINA.
Sincerely yours,
COGENTRIX DELAWARE HOLDINGS, INC.
By:
--------------------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President -
Finance and Treasurer
Acknowledged and agreed
Ecoscience Corporation
By:
- --------------------------------
Name:
Title:
<PAGE>
ALLONGE
TO
PROMISSORY NOTE
ALLONGE to PROMISSORY NOTE ("Note"), dated December 30, 1998, of ECOSCIENCE
CORPORATION, a Delaware corporation, having its principal place of business at
10 Alvin Court, East Brunswick, New Jersey 08816 (the "Maker"), payable to the
order of COGENTRIX DELAWARE HOLDINGS, INC., a Delaware corporation, having its
principal place of business at 1105 North Market Street, Suite 1108, Wilmington,
DE 19801 (together with his successors and assigns, the "Holder).
The date for payment in one installment of the principal together with all
interest accrued on the Note is extended from July 31, 1999 to August 31, 1999.
COGENTRIX DELAWARE HOLDINGS, INC.
By:
-------------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President -
Finance and Treasurer
ECOSCIENCE CORPORATION
By:
-------------------------------
Name:
Title:
<PAGE>
ALLONGE
TO
PROMISSORY NOTE
ALLONGE to PROMISSORY NOTE ("Note"), dated March 15, 1999, of ECOSCIENCE
CORPORATION, a Delaware corporation, having its principal place of business at
10 Alvin Court, East Brunswick, New Jersey 08816 (the "Maker"), payable to the
order of COGENTRIX DELAWARE HOLDINGS, INC., a Delaware corporation, having its
principal place of business at 1105 North Market Street, Suite 1108, Wilmington,
DE 19801 (together with his successors and assigns, the "Holder).
The date for payment in one installment of the principal together with all
interest accrued on the Note is extended from July 31, 1999 to August 31, 1999.
COGENTRIX DELAWARE HOLDINGS, INC.
By:
-------------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President -
Finance and Treasurer
ECOSCIENCE CORPORATION
By:
-------------------------------
Name:
Title:
FIRST AMENDMENT TO OPERATING AGREEMENT
THIS FIRST AMENDMENT TO OPERATING AGREEMENT (the "Amendment") is made and
entered into this 19th day of July, 1999 (the "Execution Date") by and among
Greenhost, Inc., a Delaware corporation (the "Owner"), Village Farms of
Virginia, Inc., a Delaware corporation (the "Operator"), and Agro Power
Development, Inc., a Delaware corporation ("APD"), and it amends that certain
Operating Agreement, dated as of November 14, 1997 (the "Operating Agreement").
WITNESSETH:
WHEREAS, pursuant to the Operating Agreement, Operator leases the Plant
from Owner and operates the Facility, and APD unconditionally guarantees
Operator's payment and performance obligations thereunder (the "Existing
Guarantee");
WHEREAS, the parties hereto desire to amend the Operating Agreement on the
terms and conditions set forth below.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises, the mutual
promises, covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby expressly
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINED TERMS
Capitalized terms used and not otherwise defined herein shall have the
meanings set forth in the Operating Agreement.
ARTICLE II
AMENDMENTS TO THE OPERATING AGREEMENT
2.01 Section 1.01. Section 1.01 of the Operating Agreement is hereby
amended as follows:
(a) by inserting the phrase "(including, without limitation, salary
and other benefits paid to the Operator's facility manager/head grower and
sales representatives)" after the phrase "(a) all expenses to be paid from
the Management Fee" in the proviso to the definition of "Greenhouse
Expenses";
(b) by deleting the definition of "Internal Rate of Return";
(c) by inserting the phrase ", propagated tomato plants" between the
word "tomatoes" and the phrase "or any other" in the definition of
"Product"; and
<PAGE>
(d) by inserting the phrase "in Article XVI or otherwise" between the
words "provided" and "herein" in the definition of "Term."
2.02 Section 3.01. Section 3.01 of the Operating Agreement is hereby
amended by deleting it in its entirety and inserting in lieu thereof the
following:
"Section 3.01. Basic Rent. Subject to adjustment as provided below,
during the Term, the Operator shall pay Basic Rent to the Owner in arrears
on each Basic Rent Payment Date for the Facility in an amount equal to the
amount set forth opposite such Basic Rent Payment Date as follows:
Basic Rent Payment Date Basic Rent
----------------------- ----------
June 30, 1999 $100,000
September 30, 1999 $500,000
December 31, 1999 $500,000
Each Basic Rent
Payment Date thereafter $400,000
(in the case of the last Basic Rent Payment Date if such date is other than
a Basic Rent Payment Date, such Basic Rent shall be prorated based on the
number of days during which the Operator leased the Facility). Basic Rent
shall be increased in accordance with any agreement reached in connection
with the payment by the Owner of the costs of any Alterations in accordance
with Section 6.06 hereof."
2.03 Section 3.02. Section 3.02 of the Operating Agreement is hereby
amended by deleting it in its entirety and inserting in lieu thereof the
following:
"Section 3.02. Supplemental Rent. Commencing with the second
Supplemental Rent Payment Date in calendar year 2000 and on each
Supplemental Rent Payment Date thereafter during the Term, and in addition
to Basic Rent, the Operator shall pay to the Owner Supplemental Rent in an
amount equal to fifty percent (50%) of Cash Flow for the calendar quarter
immediately preceding such Supplemental Rent Payment Date. Supplemental
Rent shall be payable for each calendar quarter in arrears on the
Supplemental Rent Payment Date immediately following the end of such
calendar quarter."
2.04 Section 3.05. Section 3.05 of the Operating Agreement is hereby
amended by deleting it in its entirety and inserting in lieu thereof the
following:
"Section 3.05. Hot Water. The Owner agrees to provide to the Operator
during the Term hot water for the operation of the Facility. The Owner
shall be responsible for contracting and paying for any fuel necessary for
providing hot water."
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<PAGE>
2.05 Article VI. Article VI of the Operating Agreement is hereby amended by
inserting the following as Sections 6.13 and 6.14 and sequentially renumbering
the existing Section 6.13 as Section 6.15:
"Section 6.13. Manager. The Operator shall employ a manager who is
reasonably satisfactory to Owner to manage the Facility. Such manager shall
not be replaced without the consent of Owner, which consent may not be
unreasonably withheld.
Section 6.14. New Employee. As of the date of this Agreement, Owner
agrees to employ Gary Norman on the same terms as he is presently employed
by Operator. Even though Mr. Norman will be employed by and will ultimately
report to the President of the Owner, at the Owner's direction, Mr. Norman
will be under the daily supervision and control of Operator's facility
manager/head grower."
2.06 Section 16.02. Section 16.02(a)(i) of the Operating Agreement is
hereby amended by deleting the second parenthetical in Section 16.02(a)(i) and
inserting in lieu thereof the following: "other than real property taxes
(including without limitation gross receipts, franchise, sales, use, personal
property, tangible or intangible)".
2.07 Article XVII. Article XVII of the Operating Agreement is hereby
amended as follows:
(a) The last sentence of Section 17.01 of the Operating Agreement is
amended to read in its entirety as follows: "The Operator further agrees
that it will not use the Facility for any purpose other than (a) the
production of tomatoes, propagated tomato plants, or, with the Owner's
consent, any other agricultural product, or (b) the warehouse operations of
Agro Dynamics described in Section 17.02(d) below."
(b) Section 17.02 is hereby amended by adding at the end thereof two
new paragraphs reading as follows:
"(d) Operator and APD shall each use its best efforts to cause
Agro Dynamics, Inc., a Delaware corporation ("Agro Dynamics"), to move
its warehouse operations to the Greenhouse Facility on or before)
December 31, 1999. Operator shall charge Agro Dynamics a reasonable
market amount per year to be mutually agreed upon between Owner and
Operator, payable monthly in arrears in equal monthly installments,
for use of a portion of the Greenhouse Facility.
(e) The Operator shall use its best efforts to commence tomato
plant propagation operations at the Facility on or before August 1,
1999.
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<PAGE>
The Operator shall sell propagated plants to third parties at fair
market value; provided, however, that if the Operator shall sell
propagated plants to its Affiliates, such plants shall be sold at a
reasonable price approved in advance by the Owner."
(c) Paragraph (c) of Section 17.02 is hereby amended to read in its
entirety as follows:
"(c) The Operator shall provide to the Owner on a monthly basis
in detail satisfactory to the Owner the following items:
(i) a list of all Product handled by the Facility for
greenhouses pursuant to subsection 17.02(a),
(ii) a list of all items purchased from Affiliates and the
purchase price thereof pursuant to subsection 17.02(b),
(iii) the amount of rent received from Agro Dynamics
pursuant to subsection 17.02(d), and
(iv) a list of sales of propagated plants made to third
parties and affiliates and the sales price thereof pursuant to
subsection 17.02(e)."
2.08 Article XX. The Operating Agreement is hereby amended by inserting the
following as Article XX:
"ARTICLE XX
TERMINATION
Owner may terminate this Operating Agreement, effective as of June 30,
2001, for its convenience, without cause, upon at least six (6) months
prior written notice to Operator. In the event of a termination of this
Operating Agreement pursuant to this Article XX, (a) the Owner shall have
no liability to the Operator (including, without limitation, liability for
any termination or cancellation payment or reimbursement of any costs or
expenses of the Operator) and (b) the Operator's obligation to pay Rent to
Owner shall cease following payment of all Rent payable through June 30,
2001 and upon the Operator's compliance with Section 6.13 hereof; provided,
however, that in no event shall such termination relieve any party hereto
of liability which has accrued or arisen prior to the date of such
termination."
2.10 Existing Guarantee. The Operating Agreement is hereby amended by
deleting from the signature page the Existing Guarantee and inserting in lieu
thereof the following:
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<PAGE>
"Unconditional Guarantee of Payment and Performance"
APD is an Affiliate of the Operator. To induce the Owner to amend the
Operating Agreement and in consideration for the benefits to be derived by
APD for the transactions contemplated hereby, APD unconditionally
guarantees the payment when due and timely performance of any and all
obligations of Operator under this Operating Agreement; provided, however,
that APD's liability under this provision shall be limited to the maximum
aggregate amount of $2,000,000.00 during the Term. Upon default by the
Operator in making payment hereunder or any other failure of performance
obligations hereunder, APD shall make such payment or cause such obligation
to be performed (subject to the limitation of liabilities set forth in the
preceding sentence), promptly upon the demand of the Owner. Notwithstanding
the foregoing, in the event the Operator, for whatever reason, ceases to
occupy and/or operate the Greenhouse Facility, Owner agrees to use its
commercially reasonable efforts, but shall not be obligated, to find a
replacement tenant/operator for the Greenhouse Facility. Any replacement
rent received by the Owner shall mitigate APD's liability under this
Guarantee. APD agrees that the Owner and/or the Operator may from time to
time extend or renew provisions of this Operating Agreement for any period
and may grant any releases, compromises or indulgences with respect thereto
(including, but not limited to, the failure or refusal to exercise one or
more of the rights or remedies provided herein), without notice to or
consent of APD, and without affecting the liability of APD hereunder.
APD covenants that it will not consolidate with, merge with or into,
or transfer all or substantially all of its assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions), to any Person unless:
(a) APD shall be the continuing Person, or the Person (if other
than APD) formed by such consolidation or into which APD is merged or to
which properties and assets of APD are transferred shall be a corporation
organized and existing under the laws of the United States or any state
thereof or the District of Columbia and shall expressly assume all the
obligations of APD under this Guarantee;
(b) Immediately after giving effect to such transaction no Event
of Default or event or condition which through the giving of notice or
lapse of time or both would become an Event of Default shall have occurred
and be continuing; and
(c) The net worth of APD or the surviving entity (including their
respective consolidated subsidiaries), as the case may be, on a pro forma
basis after giving effect to such transaction is not less than the net
worth of APD (and its consolidated subsidiaries) immediately prior to such
transaction (as
5
<PAGE>
determined in accordance with Generally Accepted Accounting Principles in
the U.S.)."
2.11 Schedule 1.01(a). Schedule 1.01(a) to the Operating Agreement is
hereby deleted in its entirety.
2.12 Schedule 3.01. Schedule 3.01 to the Operating Agreement is hereby
deleted it in its entirety.
2.13 Schedule 3.02. Schedule 3.02 to the Operating Agreement is hereby
deleted in its entirety.
ARTICLE III
EFFECTIVE DATE
This Amendment is being made and entered into on the Execution Date, but
the parties hereto hereby agree that the provisions of the Amendment will be
retroactively effective as of June 30, 1999.
ARTICLE IV
COVENANT
On or prior to July 31, 1999, Operator hereby covenants and agrees to cause
Village Farms International Finance Association (a) to convert the then
outstanding principal of and interest on all advances under the Line of Credit
Facility Agreement to equity, and (b) to contribute such equity as capital to
Operator. The parties hereto hereby agree that breach of this covenant shall
constitute an Event of Default under the Operating Agreement.
ARTICLE V
REPRESENTATIONS
5.01 Representations of Operator. Operator represents that (a) it is duly
organized, validly existing and in good standing under the laws of the State of
Delaware, (b) it has the corporate power and authority, and the legal right, to
own its property and to conduct the business in which it is currently engaged,
(c) to its knowledge, it is in compliance with all statutes, ordinances, laws,
rules, regulations, judgments, orders or decrees of any court or other
governmental or regulatory authority by which it is bound except to the extent
that the failure to comply would not, in the aggregate, have a material adverse
effect, (d) it has the corporate power and authority to make, execute and
deliver this Amendment and the Operating Agreement, as amended by this
Amendment, (e) it has taken all corporate action necessary to authorize the
execution, delivery and performance of this Amendment and the Operating
Agreement, as amended by this Amendment, and has duly executed and delivered
this Amendment, (f) no consent or authorization of, approval by, filing with,
notice to or other act by or in respect of, any governmental authority or other
person or entity is required in connection with the execution, delivery,
6
<PAGE>
performance, validity or enforceability of this Amendment which has not already
been obtained, (g) each of this Amendment and the Operating Agreement, as
amended by this Amendment, is a legal, valid and binding obligation of Operator,
enforceable against Operator in accordance with its terms, subject to the effect
of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors rights' generally and to
the effect of general equitable principals, (h) the execution, delivery and
performance by Operator of this Amendment and Operator's continuing performance
of the Operating Agreement, as amended by this Amendment, will not violate the
Certificate of Incorporation or Bylaws of Operator or any law or regulation or
determination of any court or arbitrator applicable to Operator, (i) Operator is
not subject to any pending, or to its knowledge, threatened litigation or
arbitration proceeding that, if determined adversely, would have a material
adverse effect on its ability to perform under the Amendment or the Operating
Agreement, as amended by this Amendment, and (j) the execution, delivery and
performance by Operator of the Amendment and Operator's continuing performance
of the Operating Agreement, as amended by this Amendment, will not constitute a
default under any material contract or agreement to which Operator is a party.
5.02 Representations of APD. APD represents that (a) it is duly organized,
validly existing and in good standing under the laws of the State of Delaware,
(b) it has the corporate power and authority, and the legal right, to own its
property and to conduct the business in which it is currently engaged, (c) to
its knowledge, it is in compliance with all statutes, ordinances, laws, rules,
regulations, judgments, orders or decrees of any court or other governmental or
regulatory authority by which it is bound except to the extent that the failure
to comply would not, in the aggregate, have a material adverse effect, (d) it
has the corporate power and authority to make, execute and deliver this
Amendment, (e) it has taken all corporate action necessary to authorize the
execution, delivery and performance of this Amendment and its guarantee of the
Operating Agreement and has duly executed and delivered this Amendment and its
guarantee of the Operating Agreement, (f) no consent or authorization of,
approval by, filing with, notice to or other act by or in respect of, any
governmental authority or other person or entity is required in connection with
the execution, delivery, performance, validity or enforceability of this
Amendment and its guarantee of the Operating Agreement which has not already
been obtained, (g) each of this Amendment and its guarantee of the Operating
Agreement is a legal, valid and binding obligation of APD, enforceable against
APD in accordance with its terms, subject to the effect of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors rights' generally and to the effect of
general equitable principals, (h) the execution, delivery and performance by APD
of this Amendment and APD's performance of its guarantee of the Operating
Agreement will not violate the Certificate of Incorporation or Bylaws of APD or
any law or regulation or determination of any court or arbitrator applicable to
APD, (i) APD is not subject to any pending, or to its knowledge, threatened
litigation or arbitration proceeding that, if determined adversely, would have a
material adverse effect on its ability to perform under the Amendment or its
guarantee of the Operating Agreement, and (j) the execution, delivery and
performance by APD of the Amendment and APD's performance of its guarantee of
the Operating Agreement will not constitute a default under any material
contract or agreement to which APD is a party.
7
<PAGE>
ARTICLE VI
MISCELLANEOUS
6.01 Full Force and Effect. Except as expressly set forth herein, the
Operating Agreement shall be and remain in full force and effect as originally
written, and shall constitute the legal, valid, binding and enforceable
obligations of Owner and Operator. APD hereby acknowledges the full force and
effect of the Operating Agreement and its continuing guarantee of the Operating
Agreement, as amended hereby.
6.02 Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which, when so executed and delivered, shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
6.03 Successors and Assigns. This Amendment shall be binding upon and inure
to the benefit of the successors and permitted assigns of the parties hereto.
6.04 Governing Law. This Amendment shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Virginia.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
"Owner"
GREENHOST, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
"Operator"
VILLAGE FARMS OF VIRGINIA, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
"APD"
AGRO POWER DEVELOPMENT, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
9
LOAN AND SECURITY AGREEMENT
CENTURY BUSINESS CREDIT CORPORATION
with
AGRO DYNAMICS, INC.
and
ECOSCIENCE PRODUCE SYSTEMS CORPORATION
Dated: June __, 1999
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement is made as of June __, 1999 by and between
CENTURY BUSINESS CREDIT CORPORATION ("Lender"), having executive offices at 119
West 40th Street, New York, New York 10018, AGRO DYNAMICS, INC. ("ADI"), having
its principal place of business at 10 Alvin Court, East Brunswick, New Jersey
08816, and ECOSCIENCE PRODUCE SYSTEMS CORPORATION ("EPSC"), having its principal
place of business at 4300 L.B. McLeod, Suite C, Orlando, Florida 32811 (ADI and
EPSC, each a "Borrower", and jointly and severally, "Borrowers").
WHEREAS, Borrowers have requested that Lender make loans and advances
available to Borrowers; and
WHEREAS, Lender has agreed to make such loans and advances to Borrowers on
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
and the terms and conditions contained herein, the parties hereto agree as
follows:
1. (a) General Definitions. When used in this Agreement, the following
terms shall have the following meanings:
"ADC" means Agro Dynamics Canada Inc., a corporation organized under the
laws of Canada.
"ADC Collateral" shall have the meaning given to the term "Collateral" in
the Guarantor Security Agreement.
"ADC Inventory" means and includes all of ADC's now owned or hereafter
acquired goods, merchandise and other personal property, wherever located, to be
furnished under any contract of service or held for sale or lease, all raw
materials, work in process, finished goods and materials and supplies of any
kind, nature or description which are or might be used or consumed in ADC's
business or used in selling or furnishing such goods, merchandise and other
personal property, and all documents of title or other documents representing
them.
"ADC Receivables" means and includes all of ADC's now owned or hereafter
acquired accounts and contract rights, instruments, insurance proceeds,
documents, chattel paper, letters of credit and ADC's rights to receive payment
thereunder, any and all rights to the payment or receipt of money or other forms
of consideration of any kind at any time now or hereafter owing or to be owing
to ADC, all proceeds thereof and all files in which ADC has any interest
whatsoever containing information identifying or pertaining to any of ADC's
Receivables, together with all of ADC's rights to any merchandise which is
represented thereby, and all of ADC's right, title, security and guaranties with
respect to each ADC Receivable, including, without limitation, all rights of
stoppage in transit, replevin and reclamation and all rights as an unpaid
vendor.
<PAGE>
"Affiliate" of any Person means (a) any Person (other than a Subsidiary)
which, directly or indirectly, is in control of, is controlled by, or is under
common control with such Person, or (b) any Person who is a director or officer
(i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person
described in clause (a) above. For purposes of this definition, control of a
Person shall mean the power, direct or indirect, (i) to vote five percent (5.0%)
or more of the securities having ordinary voting power for the election of
directors of such Person, or (ii) to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
"Ancillary Agreements" means all agreements, instruments, and documents
including, without limitation, mortgages, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, trust agreements whether
heretofore, concurrently, or hereafter executed by or on behalf of any Borrower
or delivered to Lender, relating to this Agreement or to the transactions
contemplated by this Agreement.
"Authority" shall have the meaning set forth in paragraph 12(e)(iii).
"Borrowing Agent" means ADI.
"Closing Date" means June ___, 1999 or such other date as may be agreed
upon by the parties hereto.
"Collateral" means and includes:
(A) all Inventory;
(B) all Equipment;
(C) all General Intangibles;
(D) all Receivables;
(E) all books, records, ledgercards, files, correspondence, computer
programs, tapes, disks and related data processing software (owned by any
Borrower or in which it has an interest) which at any time evidence or contain
information relating to (A), (B), (C) and (D) above or are otherwise necessary
or helpful in the collection thereof or realization thereupon;
(F) all of each Borrower's documents of title, policies and
certificates of insurance, securities, chattel paper, other documents or
instruments evidencing or pertaining to (A), (B), (C), (D) and (E) above;
(G) all guaranties, liens on real or personal property, leases, and
other agreements and property which in any way secure or relate to (A), (B),
(C), (D), (E) and (F) above, or are acquired for the purpose of securing and
enforcing any item thereof;
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<PAGE>
(H) (i) all cash held as cash collateral to the extent not otherwise
constituting Collateral, all other cash or property at any time on deposit with
or held by Lender for the account of any Borrower (whether for safekeeping,
custody, pledge, transmission or otherwise), (ii) all present or future deposit
accounts (whether time or demand or interest or non-interest bearing) of any
Borrower with Lender or any other Person including those to which any such cash
may at any time and from time to time be credited, (iii) all investments and
reinvestments (however evidenced) of amounts from time to time credited to such
accounts, (iv) all interest, dividends, distributions and other proceeds payable
on or with respect to (x) such investments and reinvestments and (y) such
accounts, and (v) all of each Borrower's investment property; and
(I) all products and proceeds of (A), (B), (C), (D), (E), (F), (G) and
(H) above (including, but not limited to, all claims to items referred to in
(A), (B), (C), (D), (E), (F), (G) and (H) above) and all claims of any Borrower
against third parties (x) for (i) loss of, damage to, or destruction of, and
(ii) payments due or to become due under leases, rentals and hires of any or all
of (A), (B), (C), (D), (E), (F), (G) and (H) above and (y) proceeds payable
under, or unearned premiums with respect to policies of insurance in whatever
form.
"Contract Rate" means an interest rate per annum equal to the greater of
(A) seven percent (7.00%) or (B) (i) the Prime Rate plus (ii) two and
three-quarters percent (2.75%).
"Customer" means and includes the account debtor with respect to any of the
Receivables or the ADC Receivables and/or prospective purchaser of goods,
services or both with respect to any contract or contract right, and/or any
party who enters into or proposes to enter into any contract or other
arrangement with any Borrower or ADC, pursuant to which such Borrower or ADC is
to deliver any personal property or perform any services.
"Default Rate" means a rate equal to three percent (3.0%) per annum in
excess of the Contract Rate.
"EcoScience" means EcoScience Corporation, a corporation organized under
the laws of the State of Delaware.
"Eligible Inventory" means Inventory and ADC Inventory which the Lender, in
its sole and absolute discretion, exercised in a commercially reasonable manner,
determines: (a) is subject to the security interest of Lender and is subject to
no other liens or encumbrances whatsoever (other than Permitted Liens); (b) is
in good condition and meets all standards imposed by any governmental agency, or
department or division thereof having regulatory authority over such Inventory,
its use or sale including but not limited to the Federal Fair Labor Standards
Act of 1938 as amended, and all rules, regulations and orders thereunder; (c) is
currently either usable or salable in the normal course of each Borrower's or
ADC's business; (d) does not represent Inventory received from suppliers of ADC
within the immediately preceding thirty (30) day period unless such Inventory
has been paid for; and (e) not to be ineligible for any other reason.
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<PAGE>
"Eligible Receivables" means and includes each Receivable and each ADC
Receivable which conforms to the following criteria: (a) shipment of the
merchandise or the rendition of services has been completed; (b) no return,
rejection or repossession of the merchandise has occurred; (c) merchandise or
services shall not have been rejected or disputed by the Customer and there
shall not have been asserted any offset, defense or counterclaim; (d) continues
to be in full conformity with the representations and warranties made by
Borrowers and ADC to the Lender with respect thereto; (e) Lender is, and
continues to be, satisfied with the credit standing of the Customer in relation
to the amount of credit extended; (f) there are no facts existing or threatened
which are likely to result in any adverse change in a Customer's financial
condition; (g) is documented by an invoice in a form approved by Lender and
shall not be unpaid more than ninety (90) days from invoice date; (h) less than
thirty-three percent (33%) of the unpaid amount of invoices due from such
Customer remain unpaid more than ninety (90) days from invoice date; (i) is not
evidenced by chattel paper or an instrument of any kind with respect to or in
payment of the Receivable or the ADC Receivable unless such instrument is duly
endorsed to and in possession of the Lender or represents a check in payment of
a Receivable or an ADC Receivable; (j) if the Customer is located outside of the
United States or Canada, the goods which gave rise to such Receivable or such
ADC Receivable were shipped after receipt by such Borrower or ADC, as the case
may be, from or on behalf of the Customer of an irrevocable letter of credit,
assigned and delivered to the Lender and confirmed by a financial institution
acceptable to the Lender and is in form and substance acceptable to the Lender,
payable in the full amount of the Receivable or the ADC Receivable in United
States dollars at a place of payment located within the United States; (k) such
Receivable or ADC Receivable is not subject to any lien, other than Permitted
Liens; (l) does not arise out of transactions with any employee, officer, agent,
director, stockholder or Affiliate of any Borrower or ADC; (m) is payable to a
Borrower or ADC; (n) does not arise out of a bill and hold sale prior to
shipment and, if the Receivable or the ADC Receivable arises out of a sale to
any Person to which a Borrower or ADC is indebted, the amount of such
indebtedness, and any anticipated indebtedness, is deducted in determining the
face amount of such Receivable or such ADC Receivable; (o) is net of any
returns, discounts, claims, credits and allowances; (p) if the Receivable arises
out of contracts between a Borrower and the United States, any state, or any
department, agency or instrumentality of any of them, such Borrower has so
notified Lender, in writing, prior to the creation of such Receivable, and, if
Lender so requests, there has been compliance with any governmental notice or
approval requirements, including without limitation, compliance with the Federal
Assignment of Claims Act; (q) is a good and valid account representing the
undisputed portion of a bona fide indebtedness incurred by the Customer therein
named, for a fixed sum as set forth in the invoice relating thereto with respect
to an unconditional sale and delivery upon the stated terms of goods sold by a
Borrower, or work, labor and/or services rendered by a Borrower or ADC; (r) the
total unpaid Receivables from such Customer does not exceed twenty percent (20%)
of all Eligible Receivables; (s) does not arise out of progress billings prior
to completion of the order; and (t) is otherwise satisfactory to the Lender as
determined in good faith by the Lender in the reasonable exercise of its
discretion.
"Environmental Complaint" shall have the meaning set forth in paragraph
12(e)(iii).
4
<PAGE>
"Equipment" means and includes all of each Borrower's now owned or
hereafter acquired equipment, machinery and goods (excluding Inventory), whether
or not constituting fixtures, including, without limitation: plant and office
equipment, tools, dies, parts, data processing equipment, furniture and trade
fixtures, trucks, trailers, loaders and other vehicles and all replacements and
substitutions therefore and all accessions thereto.
"ERISA" shall have the meaning set forth in paragraph 12(f).
"Event of Default" shall mean the occurrence of any of the events set forth
in paragraph 18.
"FDA" means the Food and Drug Administration and any successor thereto.
"Formula Amount" shall have the meaning set forth in paragraph 2(a).
"GAAP" means generally accepted accounting principles, practices and
procedures in effect from time to time.
"General Intangibles" means and includes all of each Borrower's now owned
or hereafter acquired general intangibles including, without limitation,
trademarks, tradenames, tradestyles, trade secrets, equipment formulation,
manufacturing procedures, quality control procedures, product specifications,
patents, patent applications, copyrights, registrations, contract rights, choses
in action, causes of action, corporate or other business records, inventions,
designs, goodwill, claims under guarantees, licenses, franchises, tax refunds,
tax refund claims, computer programs, computer data bases, computer program flow
diagrams, source codes, object codes and all other intangible property of every
kind and nature.
"Guarantor" means individually, ADC and any other Person who may hereafter
guarantee payment or performance of the whole or any part of the Obligations and
"Guarantors" means collectively all such Persons.
"Guarantor Security Agreements" means collectively, the General Security
Agreement dated the Closing Date which is executed by ADC in favor of Lender.
"Guaranty Agreements" means the Guaranty Agreements which are executed by
each Guarantor in favor of Lender.
"Hazardous Discharge" shall have the meaning set forth in paragraph
12(e)(iii).
"Incipient Event of Default" means any act or event which, with the giving
of notice or passage of time or both, would constitute an Event of Default.
"Individual Formula Amount" means at the date of determination thereof, (a)
with respect to ADI, an amount equal to:
(i) Receivables Availability of ADI and ADC, plus
(ii) Inventory Availability of ADI and ADC, minus
(iii) such reserves as Lender may reasonably deem proper and necessary
from time to time; and
(b) with respect to EPSC, an amount equal to:
(i) Receivables Availability of EPSC, plus
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(ii) Inventory Availability of EPSC, minus
(iii) such reserves as Lender may reasonably deem proper and necessary
from time to time.
"Individual Maximum Revolving Advance Amount" means with respect to each
Borrower, an amount equal to the Maximum Revolving Amount minus the outstanding
amount of Revolving Advances to the other Borrower.
"Inventory" means and includes all of each Borrower's now owned or
hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in such Borrower's business or used in selling or furnishing such
goods, merchandise and other personal property, and all documents of title or
other documents representing them.
"Inventory Availability" means the amount of Revolving Credit Advances
against Eligible Inventory, Lender may from time to time during the Term make
available to each Borrower up to the lesser of (a) up to fifty percent (50%) of
the value of such Borrower's Eligible Inventory (calculated on the basis of the
lower of cost or market, on a first-in first-out basis) or (b) fifty percent
(50%) of the amount of such Borrower's Receivables Availability. The Eligible
Inventory of ADC shall be included for the purpose of determining the Eligible
Inventory of ADI and the Eligible Receivables of ADC shall be included for the
purposes of determining the Eligible Receivables of ADI.
"Letters of Credit" means all letters of credit and guarantees opened or
caused to be opened by Lender for any Borrower's account and any drafts and
acceptances thereunder.
"Loans" means the Revolving Credit Advances and all extensions of credit
hereunder or under any Ancillary Agreement, including, without limitation,
Letters of Credit.
"Maximum Revolving Amount" means $4,000,000.
"Minimum Average Monthly Loan Amount" means $1,000,000.
"Minimum Default Average Monthly Loan Amount" means $500,000.
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"Obligations" means and includes all Loans, all advances, debts,
liabilities, obligations, covenants and duties owing by any Borrower to Lender
(or any corporation that directly or indirectly controls or is controlled by or
is under common control with Lender) of every kind and description (whether or
not evidenced by any note or other instrument and whether or not for the payment
of money or the performance or non-performance of any act), direct or indirect,
absolute or contingent, due or to become due, contractual or tortious,
liquidated or unliquidated, whether existing by operation of law or otherwise
now existing or hereafter arising including, without limitation, any debt,
liability or obligation owing from any Borrower to others which Lender may have
obtained by assignment or otherwise and further including, without limitation,
all interest, charges or any other payments any Borrower is required to make by
law or otherwise arising under or as a result of this Agreement and the
Ancillary Agreements, together with all reasonable expenses and reasonable
attorneys' fees chargeable to any Borrower's account or incurred by Lender in
connection with any Borrower's account whether provided for herein or in any
Ancillary Agreement.
"Permitted Liens" means (i) liens of carriers, warehousemen, artisans,
bailees, mechanics and materialmen incurred in the ordinary course of business
securing sums not overdue; (ii) liens incurred in the ordinary course of
business in connection with workmen's compensation, unemployment insurance or
other forms of governmental insurance or benefits, relating to employees,
securing sums (a) not overdue or (b) being diligently contested in good faith
provided that adequate reserves with respect thereto are maintained on the books
of Borrowers in conformity with GAAP, (iii) liens in favor of Lender, (iv) liens
for taxes (a) not yet due or (b) being diligently contested in good faith,
provided that adequate reserves with respect thereto are maintained on the books
of Borrowers in conformity with GAAP provided, that, the lien shall have no
effect on the priority of liens in favor of Lender or the value of the assets in
which Lender has a lien and (v) liens specified on Exhibit 1(A) hereto.
"Person" means an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Prime Rate" means the prime commercial lending rate of Wells Fargo & Co.
as publicly announced in San Francisco, California to be in effect from time to
time as its "prime" or "base" rate of interest and is neither tied to any
external rate of interest or index nor does it necessarily reflect the lowest
rate of interest actually charged to any particular class or category of
customers. Such rate shall be increased or decreased as the case may be for each
increase or decrease in said rate in an amount equal to such increase or
decrease in said rate; each change to be effective as of the day of the change
in such rate.
"Receivables" means and includes all of each Borrower's now owned or
hereafter acquired accounts and contract rights, instruments, insurance
proceeds, documents, chattel paper, letters of credit and each Borrower's rights
to receive payment thereunder, any and all rights to the payment or receipt of
money or other forms of consideration of any kind at any time now or hereafter
owing or to be owing to any Borrower, all proceeds thereof and all files in
which Borrower has any interest whatsoever containing information identifying or
pertaining to any of such Borrower's Receivables, together with all of each
Borrower's rights to any merchandise
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which is represented thereby, and all of each Borrower's right, title, security
and guaranties with respect to each Receivable, including, without limitation,
all rights of stoppage in transit, replevin and reclamation and all rights as an
unpaid vendor.
"Receivables Availability" means the amount of Revolving Credit Advances
against Eligible Receivables Lender may from time to time during the term of
this Agreement make available to each Borrower up to eighty-five percent (85%)
of the net face amount of Eligible Receivables of such Borrower. The Eligible
Receivables of ADC shall be included for the purposes of determining the
Eligible Receivables of ADI.
"Revolving Credit Advances" shall have the meaning set forth in paragraph
2(a).
"Subsidiary" of any Person means a corporation or other entity whose shares
of stock or other ownership interests having ordinary voting power (other than
stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Term" means the Closing Date through the Termination Date subject to
acceleration upon the occurrence of an Event of Default hereunder or other
termination hereunder.
"Termination Date" means June ___, 2001.
"UCC" means the Uniform Commercial Code as adopted in the State of New
Jersey as in effect from time to time.
(c) Accounting Terms. Any accounting terms used in this Agreement which are
not specifically defined shall have the meanings customarily given them in
accordance with GAAP.
(d) Other Terms. All other terms used in this Agreement and defined in the
UCC, shall have the meaning given therein unless otherwise defined herein.
2. Revolving Credit Advances.
(a) Subject to the terms and conditions set forth herein and in the
Ancillary Agreements, Lender may, in its sole discretion, make revolving credit
advances (the "Revolving Credit Advances") to Borrowers from time to time during
the term of this Agreement which, in the aggregate at any time outstanding, will
not exceed the lesser of (x) the Maximum Revolving Amount minus the aggregate
amount of outstanding Letters of Credit or (y) an amount equal to:
(i) the sum of the Receivables Availability of Borrowers, plus
(ii) the lesser of (x) $1,200,000, (y) the Inventory Availability of
Borrowers or (z) fifty percent (50%) of the sum of Receivables Availability of
Borrowers, minus
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(iii) such reserves as Lender may reasonably deem proper and necessary
from time to time, including, without limitation the amount derived from
paragraph 2(a)(y)(i), plus paragraph 2(a)(y)(ii), minus paragraph 2(a)(y)(iii)
shall be referred to as the "Formula Amount".
(b) Lender may, in its sole discretion, make Revolving Credit Advances to
each Borrower from time to time during the term of this Agreement, which in the
aggregate at any time outstanding, will not exceed the lesser of (i) such
Borrower's Individual Maximum Revolving Advance Amount or (ii) such Borrower's
Individual Formula Amount.
(c) Notwithstanding the limitations set forth above, Lender retains the
right to lend to Borrowers from time to time such amounts in excess of such
limitations as Lender may determine in its sole discretion.
(d) Each Borrower acknowledges that the exercise of Lender's discretionary
rights hereunder may result during the term of this Agreement in one or more
increases or decreases in the advance percentages used in determining
Receivables Availability and Inventory Availability and each Borrower hereby
consents to any such increases or decreases which may limit or restrict advances
requested by Borrowers.
(e) If any Borrower does not pay any interest, fees, costs or charges to
Lender when due, Borrowers shall thereby be deemed to have requested, and Lender
is hereby authorized at its discretion to make and charge to Borrowers' account,
a Revolving Credit Advance as of such date in an amount equal to such unpaid
interest, fees, costs or charges.
(f) Any sums expended by Lender due to any Borrower's failure to perform or
comply with its obligations under this Agreement, including but not limited to
the payment of taxes, insurance premiums or leasehold obligations, shall be
charged to Borrowers' account as a Revolving Credit Advance and added to the
Obligations; provided, that, Lender shall provide Borrower notice prior to
charging Borrower's account for such sums.
(g) Lender will account to Borrowers monthly with a statement of all
Revolving Credit Advances and other advances, charges and payments made pursuant
to this Agreement, and such account rendered by Lender shall be deemed final,
binding and conclusive absent manifest error unless Lender is notified by
Borrowing Agent in writing to the contrary within thirty (30) days of the date
each account was rendered specifying the item or items to which objection is
made.
(h) During the Term hereof, Borrowers may borrow, prepay and reborrow
Revolving Credit Advances, all in accordance with the terms and conditions
hereof.
3. Repayment of the Revolving Credit Advances. Borrowers shall be required
to (a) make a mandatory prepayment hereunder at any time that (i) the aggregate
outstanding principal balance of the Revolving Credit Advances made by Lender to
Borrowers hereunder is in excess of the Formula Amount, in an amount equal to
such excess or (ii) the
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aggregate outstanding principal balance of the Revolving Credit Advances made by
Lender to any Borrower hereunder is in excess of such Borrower's Individual
Formula Amount, in an amount equal to such excess, and (b) repay on the
expiration of the Term (i) the then aggregate outstanding principal balance of
Revolving Credit Advances made by Lender to Borrowers hereunder together with
accrued and unpaid interest, fees and charges and (ii) all other amounts owed
Lender under this Agreement and the Ancillary Agreements. Any payments of
principal, interest, fees or any other amounts payable hereunder or under any
Ancillary Agreement shall be made prior to 12:00 noon New York time on the due
date thereof in immediately available funds.
4. Procedure for Revolving Credit Advances. Borrowing Agent on behalf of
any Borrower may by written or telephonic notice request a borrowing of
Revolving Credit Advances prior to 11:00 A.M. New York time on the business day
of its request to incur, on that day, a Revolving Credit Advance. All Revolving
Credit Advances shall be disbursed from whichever office or other place Lender
may designate from time to time and, together with any and all other Obligations
of Borrowers to Lender, shall be charged to Borrowers' account on Lender's
books. The proceeds of each Revolving Credit Advance made by the Lender shall be
made available on the day so requested by way of credit to the applicable
Borrower's operating account maintained with such bank as Borrowing Agent
designated to Lender. Any and all Obligations due and owing hereunder may be
charged to Borrowers' account and shall constitute Revolving Credit Advances.
5. Interest and Fees.
(a) Interest.
(i) Except as modified by paragraphs 5(a)(iii) and 5(b)(v) below,
Borrowers shall pay interest on the unpaid principal balance of the Loans for
each day they are outstanding at the Contract Rate.
(ii) Interest shall be (a) computed on the basis of actual days
elapsed over a 360-day year, (b) calculated by Lender on a daily basis and
billed to Borrowers monthly and (c) payable in arrears on the last day of each
month, or, at Lender's option, Lender shall charge Borrowers' account for said
interest. Upon Borrower's request, Lender shall provide Borrower with the amount
of interest charged to Borrower's account.
(iii) Upon the occurrence and during the continuance of an Event of
Default, interest shall be payable at the Default Rate.
(iv) Notwithstanding the foregoing, in no event shall interest exceed
the maximum rate permitted under any applicable law or regulation, and if any
provision of this Agreement or an Ancillary Agreement is in contravention of any
such law or regulation, such provision shall be deemed amended to provide for
interest at said maximum rate and any excess amount shall either be applied, at
Lender's option, to the outstanding Loans in such order as Lender shall
determine or refunded by Lender to Borrowers.
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(v) Borrowers shall pay principal, interest and all other amounts
payable hereunder, or under any Ancillary Agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any set-off or
counterclaim.
(b) Fees.
(i) Minimum Loan Fee. In the event the average closing daily unpaid
balances of all Loans hereunder during any calendar month is less than the
Minimum Average Monthly Loan Amount, Borrowers shall pay to Lender a minimum
loan fee at a rate per annum equal to the Contract Rate on the amount by which
the Minimum Average Monthly Loan Amount exceeds such average closing daily
unpaid balances. Such fee shall be calculated on the basis of a year of 360 days
and actual days elapsed and such fee shall be charged to Borrowers' account on
the first day of each month with respect to the prior month.
(ii) Closing Fee. Upon execution of this Agreement by Borrowers and
Lender, Borrowers shall pay to Lender a closing fee in an amount equal to one
percent (1.00%) of the Maximum Revolving Amount.
(iii) Collateral Evaluation Fee. Borrowers shall pay Lender a
collateral evaluation fee of $500 per month, payable on the Closing Date and on
the first day of each month thereafter. The collateral evaluation fee shall be
deemed earned in full on the date same is due and payable and shall not be
subject to rebate or proration for any reason.
(iv) Collateral Monitoring Fee. Upon Lender's performance of any
collateral monitoring and/or verification including, without limitation, any
field examination, collateral analysis or other business analysis, the need for
which is to be determined by Lender and which monitoring is undertaken by Lender
or for Lender's benefit, an amount equal to $700 per day, per person, for each
person employed to perform such monitoring together with all costs,
disbursements and expenses incurred by the Lender and the person performing such
collateral monitoring and/or verification shall be charged to Borrowers'
account. Lender agrees to use its best efforts provided that no Incipient Event
of Default or Event of Default has occurred to limit the number of field
examinations conducted by Lender to once each quarter.
(v) Minimum Default Loan Fee. In the event that following the
occurrence of an Event of Default the average closing daily unpaid balance of
all Loans hereunder during any calendar month is less than the Minimum Default
Average Monthly Loan Amount, Borrowers shall pay to Lender in lieu of interest
charges provided for in paragraph 5(a) and the fees provided for in paragraph
5(b)(i), a fee equal to two percent (2.0%) per month on the unpaid principal
balance of the Loans. Such fee shall be computed on the basis of a year of 360
days and actual days elapsed and such fee shall be charged to Borrowers' account
on the first day of each month with respect to the prior month.
(vi) Overadvance Fee. Without affecting Borrowers' obligation to
immediately repay any Loans which exceed the amounts permitted by paragraph 2 of
this Agreement ("Overadvances"), in the event an Overadvance occurs or is made
by Lender, Borrowers shall pay interest on the unpaid balance of the Loans at
the Default Rate for as long as
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such Overadvance remains outstanding and shall pay Lender a fee in the amount of
$250.00 for each month or part thereof that an Overadvance exists. Such fee
shall be charged to Borrowers' account upon the occurrence of each Overadvance.
(vii) Financial Information Default. Without affecting Lender's other
rights and remedies, in the event any Borrower fails to deliver the financial
information required by paragraphs 9 and 11 on the date required by this
Agreement, Borrowers shall pay Lender a fee in the amount of $100.00 for each
such failure. Such fee shall be charged to Borrowers' account upon the
occurrence of each such failure.
6. Security Interest.
(a) To secure the prompt payment to Lender of the Obligations, each
Borrower hereby assigns, pledges and grants to Lender a continuing security
interest in and to the Collateral, whether now owned or existing or hereafter
acquired or arising and wheresoever located, whether or not the same is subject
to Article 9 of the UCC; provided, however, the foregoing grant of a security
interest and lien shall not include any rights or interests of any Borrower
under any licenses, leases or other contracts if and to the extent that (i) the
terms of the agreement or agreements creating or evidencing such rights or
interests prohibit such grant and (ii) the term prohibiting such grant is
effective as a matter of law and has not been waived or the consent of the
necessary party to the grant to Lender has not been obtained; provided, further,
(x) if any such prohibition is subsequently lifted, terminated or is otherwise
no longer effective as a matter of law or is waived or the consent of the
necessary party is obtained, a security interest therein in favor of Lender
shall automatically arise hereunder without any further action on the party of
any Borrower or Lender and (y) nothing contained herein shall be deemed to
limit, impair or otherwise affect Lender's security interest in any rights or
interests of any Borrower in or to monies due or to become due under any such
agreement. All of Borrowers' ledger sheets, files, records, books of account,
business papers and documents relating to the Collateral shall, until delivered
to or removed by Lender, be kept by Borrowers in trust for Lender until all
Obligations have been paid in full. Each confirmatory assignment schedule or
other form of assignment hereafter executed by Borrowers shall be deemed to
include the foregoing grant, whether or not the same appears therein.
(b) Lender may file one or more financing statements disclosing Lender's
security interest in the Collateral without a Borrower's signature appearing
thereon or Lender may sign on a Borrower's behalf as provided in paragraph 13
hereof. The parties agree that a carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement. If any Receivable
or any ADC Receivable becomes evidenced by a promissory note or any other
instrument for the payment of money, the applicable Borrower will or will cause
ADC to immediately deliver such instrument to Lender appropriately endorsed.
7. Representations Concerning the Collateral. Each Borrower represents and
warrants (each of which such representations and warranties shall be deemed
repeated upon the making of each request for a Revolving Credit Advance and made
as of the time of each and every Revolving Credit Advance hereunder):
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(a) each Borrower owns its respective Collateral free and clear of all
claims, liens, security interests and encumbrances (including without limitation
any claims of infringement) except (A) those in Lender's favor and (B) Permitted
Liens;
(b) none of the Collateral is subject to any agreement prohibiting the
granting of a security interest or requiring notice of or consent to the
granting of a security interest; and
(c) all Receivables and ADC Receivables (i) represent complete bona fide
transactions which require no further act under any circumstances on the
applicable Borrower's or ADC's part to make such Receivables or ADC Receivables
payable by the Customers, (ii) to the best of each Borrower's knowledge, are not
subject to any present, future or contingent offsets or counterclaims, and (iii)
do not represent bill and hold sales, consignment sales, guaranteed sales, sale
or return or other similar understandings or obligations of any Affiliate or
Subsidiary of any Borrower.
8. Covenants Concerning the Collateral. During the Term, each Borrower
covenants that it shall:
(a) not dispose of any of the Collateral whether by sale, lease or
otherwise except for (i) the sale of Inventory in the ordinary course of
business, and (ii) the disposition or transfer in the ordinary course of
business during any fiscal year of obsolete and worn-out Equipment having an
aggregate fair market value for all Borrowers of not more than $100,000 and only
to the extent that (x) the proceeds (if any) of any such disposition are used to
acquire replacement Equipment which is subject to Lender's first priority
security interest or (y) the proceeds (if any) of which are remitted to Lender
in reduction of the Obligations;
(b) not encumber, mortgage, pledge, assign or grant any security interest
in any Collateral or any other assets of Borrowers to anyone other than Lender
and except for Permitted Liens;
(c) place notations upon each Borrower's books of account and any financial
statement prepared by such Borrower to disclose Lender's security interest in
the Collateral;
(d) keep and maintain the Equipment in good operating condition, except for
ordinary wear and tear, and except for obsolete and worn-out equipment, shall
make all necessary repairs and replacements thereof so that the value and
operating efficiency shall at all times be maintained and preserved. No Borrower
shall permit any such items to become a fixture to real estate or accessions to
other personal property;
(e) not extend the payment terms of any Receivable beyond thirty (30) days
from invoice date without prompt notice thereof to Lender;
(f) perform all other steps requested by Lender to create and maintain in
Lender's favor a valid perfected first security interest in all Collateral
(except for Permitted Liens);
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(g) defend the Collateral against the claims and demands of all parties;
and
(h) cause at least annually, an appraisal to be performed by an appraiser
satisfactory to Lender, of its Inventory and the ADC Inventory and Lender shall
have the right based upon such appraisal to decrease the amount to the amount of
Inventory availability to an amount not greater than eighty (80%) of the auction
value of the Inventory and ADC Inventory which is acceptable to Lender and on
which Lender has a first perfected security interest as set forth such
appraisal.
9. Collection and Maintenance of Collateral and Records.
(a) Lender may at any time verify Receivables and ADC Receivables utilizing
an audit control company or any other agent of Lender. After the occurrence of
an Incipient Event of Default or Event of Default or if Lender at any time deems
itself insecure or shall fear the diminution in value of the Collateral, Lender
or Lender's designee may notify customers or account debtors, at any time at
Lender's sole discretion, of Lender's security interest in Receivables and the
ADC Receivables, collect them directly and charge the collection costs and
expenses to Borrowers' account, but, unless and until Lender does so or gives
Borrowers other instructions, Borrowers shall and shall cause ADC to collect all
Receivables and ADC Receivables for Lender, receive all payments thereon for
Lender's benefit in trust as Lender's trustee and immediately deliver them to
Lender in their original form with all necessary endorsements or, as directed by
Lender, deposit such payments as directed by Lender pursuant to paragraphs 22 or
23 hereof. For purposes of determining the balance of the Loans outstanding,
Lender will credit (conditional upon final collection) all such payments to
Borrowers' account upon receipt by Lender of good funds in dollars of the United
States of America in Lender's account; provided, however, for purposes of
computing interest on the Obligations, Lender will credit (conditional upon
final collection) all such payments to Borrower's account in the case of a
payment in the form of federal funds or other immediately available funds, two
(2) business days after receipt by Lender of such funds in dollars of the United
States of America in Lender's account and in the case of payments in any other
form, five (5) business days after receipt by Lender of good funds in dollars of
the United States of America in Lender's account. Any amount received by Lender
before 12:00 noon New York time on any business day shall be deemed received on
that business day and any amount received by Lender after 12:00 noon New York
time on any business day shall be deemed received on the next business day.
Promptly after the creation of any Receivables or ADC Receivables, Borrowers
shall provide Lender with schedules describing all Receivables and ADC
Receivables created or acquired by Borrowers and shall and shall cause ADC to
execute and deliver confirmatory written assignments of such Receivables and ADC
to Lender, but any Borrower's or ADC's failure to execute and deliver such
schedules or written confirmatory assignments of such Receivables or ADC
Receivables shall not affect or limit Lender's security interest or other rights
in and to the Receivables or ADC Receivables. Borrowers shall and shall cause
ADC to, furnish, at Lender's request, copies of contracts, invoices or the
equivalent, and any original shipping and delivery receipts for all merchandise
sold or services rendered and such other documents and information as Lender may
require. Borrowers shall also provide Lender on a monthly (within ten (10) days
after the end of each month) or more frequent basis, as requested by Lender, a
detailed or aged trial balance of all of Borrowers' and ADC's existing
Receivables and ADC Receivables specifying the names
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and balances due for each account debtor and such other information pertaining
to the Receivables or ADC Receivables as Lender may request. Borrowers shall
provide Lender on a monthly (within ten (10) days after the end of each month),
or more frequent basis, as requested by Lender, a summary report of Borrowers'
and ADC's current Inventory, certified as true and accurate by Borrowers' or
ADC's President or Chief Financial Officer, as well as an aged trial balance of
Borrowers' and ADC's existing accounts payable. Borrowers shall and shall cause
ADC to, provide Lender, as requested by Lender, such other schedules, documents
and/or information regarding the Collateral as Lender may require.
10. Inspections. At all times during normal business hours, Lender shall
have the right to (a) visit and inspect Borrowers' properties and the
Collateral, (b) upon reasonable notice to Borrowing Agent, inspect, audit and
make extracts from Borrowers' relevant books and records, including, but not
limited to, management letters prepared by independent accountants, provided,
that no notice shall be required if an Incipient Event of Default or Event of
Default shall have occurred or if Lender at any time deems itself insecure or
shall fear the diminution in value of the Collateral, and (c) discuss with
Borrowers' principal officers, and independent accountants, Borrowers' business,
assets, liabilities, financial condition, results of operations and business
prospects. Borrowers will deliver to Lender any instrument necessary for Lender
to obtain records from any service bureau maintaining records for Borrowers.
11. Financial Information. Borrowers shall provide Lender (a) as soon as
available, but in any event within ninety (90) days after the end of each of
Borrowers' fiscal years, a balance sheet of each Borrower and ADC as at the end
of such fiscal year and the related statements of income, retained earnings and
changes in cash flow for such fiscal year, setting forth in comparative form the
figures as at the end of and for the previous fiscal year, which shall have been
reported on by independent certified public accountants who shall be
satisfactory to Lender and shall be accompanied by an unqualified audit report
issued by such independent certified public accountants; (b) as soon as
available, drafts of the balance sheet of each Borrower and ADC as at the end of
each of Borrowers' and ADC's fiscal years and the related statements of income,
retained earnings and changes in cash flow for such fiscal year, which have been
internally prepared by Borrowers or ADC, as the case may be; (c) as soon as
available, but in any event within thirty (30) days after the close of each
month, the balance sheet as at the end of such month and the related statements
of income, retained earnings and changes in cash flow for such month, which have
been internally prepared by Borrowers or ADC, as the case may be. All financial
statements required under (a), (b) and (c) above shall be prepared in accordance
with GAAP, subject to year-end adjustments in the case of monthly and quarterly
statements. Together with the financial statements furnished pursuant to (a)
above, Borrowers shall and shall cause ADC to, deliver a certificate of
Borrowers' or ADC's certified public accountants addressed to Lender stating
that (i) they have caused this Agreement, the Ancillary Agreements and the
Guaranty Security Agreements to be reviewed and (ii) in making the examination
necessary for the issuance of such financial statements, nothing has come to
their attention to lead them to believe that any Event of Default or Incipient
Event of Default exists and, in particular, they have no knowledge of any Event
of Default or Incipient Event of Default or, if such is not the case, specifying
such Event of Default or Incipient Event of Default and its nature, when it
occurred and whether it is continuing. At the times the financial statements are
furnished pursuant to (a), (b) and (c) above, a certificate of each Borrower's
and ADC's President
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or Chief Financial Officer shall be delivered to Lender stating that, based on
an examination sufficient to enable him to make an informed statement, no Event
of Default or Incipient Event of Default exists, or, if such is not the case,
specifying such Event of Default or Incipient Event of Default and its nature,
when it occurred, whether it is continuing and the steps being taken by
Borrowers with respect to such event. In addition, Borrowers shall provide
Lender, as soon as available, copies of all proxy statements, financial
statements and reports which any Borrower, ADC or EcoScience sends to its
shareholders and holders of its Indebtedness and copies of any and all periodic
and special reports, as well as all registration statements which any Borrower,
ADC or EcoScience files with the Securities and Exchange Commission.
12. Additional Representations, Warranties and Covenants. Each Borrower
represents, warrants (each of which such representations and warranties shall be
deemed repeated upon the making of a request for a Revolving Credit Advance and
made as of the time of each Revolving Credit Advance made hereunder), and
covenants that:
(a) (i) each Borrower is a corporation duly organized and validly existing
under the laws of the states listed on Exhibit 12(a), (ii) each Borrower is duly
qualified and in good standing in every other state or jurisdiction in which the
nature of such Borrower's business requires such qualification and (iii) ADC is
a wholly owned Subsidiary of ADI;
(b) the execution, delivery and performance of this Agreement and the
Ancillary Agreements (i) have been duly authorized, (ii) are not in
contravention of such Borrower's certificate of incorporation, by-laws or of any
indenture, agreement or undertaking to which such Borrower is a party or by
which such Borrower is bound and (iii) are within such Borrower's corporate
powers;
(c) this Agreement and the Ancillary Agreements executed and delivered by
each Borrower are such Borrower's legal, valid and binding obligations,
enforceable in accordance with their terms;
(d) it keeps and will continue to keep all of its books and records
concerning the Collateral at the executive offices located at the address set
forth in the introductory paragraph of this Agreement and will not move such
books and records without giving Lender at least thirty (30) days prior written
notice;
(e) (i) the operation of each Borrower's business is and will continue to
be in compliance in all material respects with all applicable federal, state and
local laws, including but not limited to, all regulations promulgated by FDA (as
applicable) and all applicable environmental laws and regulations;
(ii) Borrowers will establish and maintain a system to assure and
monitor continued compliance with all applicable environmental laws, which
system shall include periodic reviews of such compliance;
(iii) In the event any Borrower obtains, gives or receives notice of
any release or threat of release of a reportable quantity of any hazardous
substances on its property
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(any such event being hereinafter referred to as a "Hazardous Discharge") or
receives any notice of violation, request for information or notification that
it is potentially responsible for investigation or cleanup of environmental
conditions on its property, demand letter or complaint, order, citation, or
other written notice with regard to any Hazardous Discharge or violation of any
environmental laws affecting its property or any Borrower's interest therein
(any of the foregoing is referred to herein as an "Environmental Complaint")
from any Person or entity, including any state agency responsible in whole or in
part for environmental matters in the state in which such property is located or
the United States Environmental Protection Agency (any such person or entity
hereinafter the "Authority"), then Borrowers shall, within seven (7) days, give
written notice of same to the Lender detailing facts and circumstances of which
Borrowers are aware giving rise to the Hazardous Discharge or Environmental
Complaint and periodically inform Lender of the status of the matter. Such
information is to be provided to allow the Lender to protect its security
interest in the Collateral and is not intended to create nor shall it create any
obligation upon the Lender with respect thereto;
(iv) Each Borrower shall respond promptly to any Hazardous Discharge
or Environmental Complaint and take all necessary action in order to safeguard
the health of any Person and to avoid subjecting the Collateral to any lien. If
any Borrower shall fail to respond promptly to any Hazardous Discharge or
Environmental Complaint or any Borrower shall fail to comply with any of the
requirements of any environmental laws, the Lender may, but without the
obligation to do so, for the sole purpose of protecting the Lender's interest in
Collateral: (A) give such notices or (B) enter onto such Borrower's property (or
authorize third parties to enter onto such property) and take such actions as
the Lender (or such third parties as directed by the Lender) deems reasonably
necessary or advisable, to clean up, remove, mitigate or otherwise deal with any
such Hazardous Discharge or Environmental Complaint. All reasonable costs and
expenses incurred by the Lender (or such third parties) in the exercise of any
such rights, including any sums paid in connection with any judicial or
administrative investigation or proceedings, fines and penalties, together with
interest thereon from the date expended at the Default Rate for Revolving Credit
Advances shall be paid upon demand by Borrowers, and until paid shall be added
to and become a part of the Obligations secured by the liens created by the
terms of this Agreement or any other agreement between Lender and any Borrower;
(v) Each Borrower shall defend and indemnify the Lender and hold the
Lender harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney's fees, suffered or
incurred by the Lender under or on account of any environmental laws, including,
without limitation, the assertion of any lien thereunder, with respect to any
Hazardous Discharge, the presence of any hazardous substances affecting any
Borrower's property, whether or not the same originates or emerges from such
Borrower's property or any contiguous real estate, including any loss of value
of the Collateral as a result of the foregoing except to the extent such loss,
liability, damage and expense is attributable to any Hazardous Discharge
resulting from actions on the part of the Lender. Borrowers' obligations under
this paragraph 12(e) shall arise upon the discovery of the presence of any
hazardous substances on Borrowers' property, whether or not any federal, state,
or local environmental agency has taken or threatened any action in connection
with the presence of any hazardous
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substances. Borrowers' obligation and the indemnifications hereunder shall
survive the termination of this Agreement;
(vi) For purposes of paragraph 12(e), all references to Borrowers'
property shall be deemed to include all of each Borrower's right, title and
interest in and to all owned and/or leased premises.
(f) based upon the Employee Retirement Income Security Act of 1974
("ERISA"), and the regulations and published interpretations thereunder: (i) no
Borrower has engaged in any Prohibited Transactions as defined in paragraph 406
of ERISA and paragraph 4975 of the Internal Revenue Code, as amended; (ii) each
Borrower has met all applicable minimum funding requirements under paragraph 302
of ERISA in respect of its plans; (iii) no Borrower has knowledge of any event
or occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) no Borrower has fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than Borrower's
employees; and (v) no Borrower has withdrawn, completely or partially, from any
multi-employer pension plan so as to incur liability under the Multiemployer
Pension Plan Amendments Act of 1980;
(g) it is solvent, able to pay its debts as they mature, has capital
sufficient to carry on its business and all businesses in which it is about to
engage and the fair saleable value of its assets (calculated on a going concern
basis) is in excess of the amount of its liabilities;
(h) there is no pending or threatened litigation, action or proceeding
against any Borrower or ADC or to Borrower's knowledge against any other Person
which involves the possibility of materially and adversely affecting any
Borrower's business, assets, operations, prospects or condition (financial or
otherwise), or the Collateral or the ability of any Borrower to perform this
Agreement;
(i) all balance sheets and income statements which have been delivered to
Lender fairly, accurately and properly state in all material respects Borrowers'
financial condition on a basis consistent with that of previous financial
statements and there has been no material adverse change in Borrowers' financial
condition as reflected in such statements since the date thereof and such
statements do not fail to disclose any fact or facts which might materially and
adversely affect Borrowers' financial condition;
(j) (x) it possesses all of the licenses, patents, copyrights, trademarks
and tradenames necessary to conduct its business, (y) there has been no
assertion or claim of violation or infringement with respect thereof and (z) all
such licenses, patents, copyrights, trademarks and tradenames are listed on
Exhibit 12(j);
(k) it will pay or discharge when due all taxes, assessments and
governmental charges or levies imposed upon it except for those contested in
good faith by appropriate proceedings and respect to which proper reserves have
been taken by Borrower provided, that any liens resulting from such taxes,
assessments and governmental charges shall have no effect
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on the priority of the liens and security interests of Lender in the Collateral
or the value of the assets in which Lender has a lien or security interest;
(l) it will promptly inform Lender in writing of: (i) the commencement of
all proceedings and investigations by or before and/or the receipt of any
notices from, any governmental or nongovernmental body and all actions and
proceedings in any court or before any arbitrator against or in any way
concerning any of any Borrower's properties, assets or business, which might
singly or in the aggregate, have a materially adverse effect on any Borrower;
(ii) any amendment of any Borrower's certificate of incorporation or by-laws;
(iii) any change in any Borrower's business, assets, liabilities, condition
(financial or otherwise), results of operations or business prospects which has
had or might have a materially adverse effect on any Borrower; (iv) any Event of
Default or Incipient Event of Default; (v) any default or any event which with
the passage of time or giving of notice or both would constitute a default under
any agreement for the payment of money to which any Borrower is a party or by
which any Borrower or any of any Borrower's properties may be bound which would
have a material adverse effect on any Borrower's business, assets, operations,
prospects or condition (financial or otherwise) or the Collateral; (vi) any
change in the location of any Borrower's executive offices; (vii) any change in
the location of any Borrower's Inventory or Equipment from the locations listed
on Exhibit 12(l) attached hereto, (viii) any change in any Borrower's corporate
name; (ix) any material delay in any Borrower's performance of any of its
obligations to any account debtor and of any assertion of any material claims,
offsets or counterclaims by any account debtor and of any allowances, credits
and/or other monies granted by it to any account debtor; (x) and furnish to
Lender all material adverse information relating to the financial condition of
any account debtor; and (xi) any material return of goods;
(m) it will not and it will cause ADC not to (i) create, incur, assume or
suffer to exist any indebtedness (exclusive of trade debt) whether secured or
unsecured other than Borrowers' indebtedness to Lender and as set forth on
Exhibit 12(m) attached hereto and made a part hereof; (ii) declare, pay or make
any dividend or distribution on any shares of the common stock or preferred
stock of such Borrower or apply any of its funds, property or assets to the
purchase, redemption or other retirement of any common or preferred stock of
such Borrower; (iii) directly or indirectly, prepay any indebtedness (other than
to Lender), or repurchase, redeem, retire or otherwise acquire any indebtedness
of any Borrower or ADC; (iv) make advances, loans or extensions of credit to any
Person; (v) become either directly or contingently liable upon the obligations
of any Person by assumption, endorsement or guaranty thereof or otherwise; (vi)
enter into any merger, consolidation or other reorganization with or into any
other Person or acquire all or a portion of the assets or stock of any Person or
permit any other Person to consolidate with or merge with it; (vii) form any
Subsidiary or enter into any partnership, joint venture or similar arrangement;
(viii) materially change the nature of the business in which it is presently
engaged; (ix) change its fiscal year or make any changes in accounting treatment
and reporting practices without prior written notice to Lender except as
required by GAAP or in the tax reporting treatment or except as required by law;
(x) enter into any transaction with any Affiliate, except in ordinary course on
arms-length terms; or (xi) bill Receivables or ADC Receivable under any name
except the present name of such Borrower or ADC, as the case may be;
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(n) all financial projections of Borrowers' performance prepared by
Borrowers or at Borrowers' direction and delivered to Lender will represent, at
the time of delivery to Lender, Borrowers' best estimate of Borrowers' future
financial performance and will be based upon assumptions which are reasonable in
light of Borrowers' past performance and then current business conditions;
(o) it will not make capital expenditures in any fiscal year an amount in
excess of $250,000;
(p) none of the proceeds of the Loans hereunder will be used directly or
indirectly to "purchase" or "carry" "margin stock" or to repay indebtedness
incurred to "purchase" or "carry" "margin stock" within the respective meanings
of each of the quoted terms under Regulation G of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect; and
(q) it will bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral. At its own cost and expense in
amounts and with carriers acceptable to Lender, it shall and shall cause ADC to
(i) keep all its insurable properties and properties in which it has an interest
insured against the hazards of fire, flood, sprinkler leakage, those hazards
covered by extended coverage insurance and such other hazards, and for such
amounts, as is customary in the case of companies engaged in businesses similar
to such Borrower's or ADC's including, without limitation, business interruption
insurance; (ii) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to such Borrower's or ADC's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of such Borrower or ADC either directly or
through authority to draw upon such funds or to direct generally the disposition
of such assets; (iii) maintain public and product liability insurance against
claims for personal injury, death or property damage suffered by others; (iv)
maintain all such worker's compensation or similar insurance as may be required
under the laws of any state or jurisdiction in which such Borrower or ADC is
engaged in business; (v) furnish Lender with (x) copies of all policies and
evidence of the maintenance of such policies at least thirty (30) days before
any expiration date, (y) endorsements to such policies naming Lender as
"co-insured" or "additional insured" and appropriate loss payable endorsements
in form and substance satisfactory to Lender, naming Lender as loss payee, and
(z) evidence that as to Lender the insurance coverage shall not be impaired or
invalidated by any act or neglect of any Borrower or ADC and the insurer will
provide Lender with at least thirty (30) days notice prior to cancellation. Each
Borrower shall and shall cause ADC to, instruct the insurance carriers that in
the event of any loss thereunder, the carriers shall make payment for such loss
to Lender and not to such Borrower or ADC and Lender jointly. If any insurance
losses are paid by check, draft or other instrument payable to any Borrower and
Lender jointly, Lender may endorse such Borrower's name thereon and do such
other things as Lender may deem advisable to reduce the same to cash. Lender is
hereby authorized to adjust and compromise claims. All loss recoveries received
by Lender upon any such insurance may be applied to the Obligations, in such
order as Lender in its sole discretion shall determine. Any surplus shall be
paid by Lender to Borrowers or applied as may be
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otherwise required by law. Any deficiency thereon shall be paid by Borrowers to
Lender, on demand.
13. Power of Attorney. Each Borrower hereby appoints Lender or any other
Person whom Lender may designate as such Borrower's attorney, with power to: (i)
endorse such Borrower's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Lender's
possession; (ii) sign such Borrower's name on any invoice or bill of lading
relating to any Receivables, drafts against customers, schedules and assignments
of Receivables, notices of assignment, financing statements and other public
records, verifications of account and notices to or from customers; (iii) verify
the validity, amount or any other matter relating to any Receivable by mail,
telephone, telegraph or otherwise with account debtors; (iv) execute customs
declarations and such other documents as may be required to clear Inventory
through Customs; (v) do all things necessary to carry out this Agreement, any
Ancillary Agreement and all related documents; and (vi) on or after the
occurrence and continuation of an Event of Default, notify the post office
authorities to change the address for delivery of such Borrower's mail to an
address designated by Lender, and to receive, open and dispose of all mail
addressed to such Borrower. Each Borrower hereby ratifies and approves all acts
of the attorney. Neither Lender nor the attorney will be liable for any acts or
omissions or for any error of judgment or mistake of fact or law. This power,
being coupled with an interest, is irrevocable so long as any Receivable which
is assigned to Lender or in which Lender has a security interest remains unpaid
and until the Obligations have been fully satisfied.
14. Expenses. Borrowers shall pay all of Lender's out-of-pocket costs and
expenses, including, without limitation, reasonable fees and disbursements of
counsel and appraisers, in connection with the preparation, execution and
delivery of this Agreement, the Ancillary Agreements, the Validity Agreements,
the Guaranty Agreements and the Guarantor Security Agreement and in connection
with the prosecution or defense of any action, contest, dispute, suit or
proceeding concerning any matter in any way arising out of, related to or
connected with this Agreement, any Ancillary Agreement and Validity Agreement,
any Guaranty Agreement or any Guarantor Security Agreement. Borrowers shall also
pay all of Lender's fees, charges, out-of-pocket costs and expenses, including
without limitation reasonable fees and disbursements of counsel and appraisers,
in connection with (a) the preparation, execution and delivery of any waiver,
any amendment thereto or consent proposed or executed in connection with the
transactions contemplated by this Agreement, the Ancillary Agreements, any
Validity Agreement, any Guaranty Agreement or any Guarantor Security Agreement,
(b) Lender's obtaining performance of the Obligations under this Agreement, any
Ancillary Agreements, any Validity Agreement, any Guaranty Agreement or any
Guarantor Security Agreement including, but not limited to, the enforcement or
defense of Lender's security interests, assignments of rights and liens
hereunder as valid perfected security interests, (c) any attempt to inspect,
verify, protect, collect, sell, liquidate or otherwise dispose of any Collateral
including the ADC Collateral, (d) any appraisals or re-appraisals of any
property (real or personal) pledged to Lender by any Borrower or ADC as
Collateral or ADC Collateral for, or any other Person as security for,
Borrowers' Obligations hereunder and (e) any consultations in connection with
any of the foregoing. Borrowers shall also pay Lender's customary bank charges
for all bank services performed or caused to be performed by Lender for
Borrowers at any Borrower's or Borrowing Agent's request or in connection with
Borrowers' loan account with Lender. All such
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costs and expenses together with all filing, recording and search fees, taxes
(excluding taxes imposed on the net income of Lender) and interest payable by
Borrowers to Lender shall be payable on demand and shall be secured by the
Collateral. If any tax by any governmental authority (excluding taxes imposed on
the net income of Lender) is or may be imposed on or as a result of any
transaction between Borrowers and Lender which Lender is or may be required to
withhold or pay, Borrowers agree to indemnify and hold Lender harmless in
respect of such taxes, and Borrowers will repay to Lender the amount of any such
taxes which shall be charged to Borrowers' account; and until Borrowers shall
furnish Lender with indemnity therefor (or supply Lender with evidence
satisfactory to it that due provision for the payment thereof has been made),
Lender may hold without interest any balance standing to Borrowers' credit and
Lender shall retain its security interests in any and all Collateral.
15. Assignment By Lender. Lender may assign any or all of the Obligations
together with any or all of the security therefor and any transferee shall
succeed to all of Lender's rights with respect thereto. Upon such transfer,
Lender shall be released from all further responsibility for the Collateral to
the extent same is assigned to any transferee. Lender may from time to time sell
or otherwise grant participations in any of the Obligations and the holder of
any such participation shall, subject to the terms of any agreement between
Lender and such holder, be entitled to the same benefits as Lender with respect
to any security for the Obligations in which such holder is a participant.
Borrowers agree that each such holder may exercise any and all rights of
banker's lien, set-off and counterclaim with respect to its participation in the
Obligations as fully as though such Borrower were directly indebted to such
holder in the amount of such participation.
16. Waivers. Each Borrower waives presentment and protest of any instrument
and notice thereof, notice of default and all other notices to which such
Borrower might otherwise be entitled.
17. Term of Agreement. This Agreement shall continue in full force and
effect until the expiration of the Term. The Termination Date shall be
automatically extended for successive periods of two (2) years each unless
Borrowing Agent shall have provided Lender with a written notice of termination,
at least sixty (60) days prior to the expiration of the Termination Date or any
renewal of the Termination Date. Upon such extension of the Termination Date or
any renewal of the Termination Date, Borrowers shall pay Lender an extension fee
in an amount equal to the product of (x) the Maximum Revolving Amount times (y)
one percent (1.0%). Notwithstanding the foregoing, Lender shall release its
security interests at any time after thirty (30) days notice upon payment to it
of all Obligations if Borrowers shall have (i) provided Lender with an executed
release of any and all claims which Borrowers may have or thereafter shall have
under this Agreement and (ii) paid to Lender an early payment fee in an amount
equal to three percent (3%) of the Maximum Revolving Amount, if the early
payment occurs prior to the first anniversary of the Closing date and one
percent (1%) of the Maximum Revolving Amount, if the early payment occurs on or
after the first anniversary of the Closing Date such fee being intended to
compensate Lender for its costs and expenses incurred in initially approving
this Agreement or extending same. Such early payment fee shall also be due and
payable by Borrowers to Lender upon termination of this Agreement by Lender
after the occurrence of an Event of Default.
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18. Events of Default. The occurrence of any of the following shall
constitute an Event of Default:
(a) failure to make payment of any of the Obligations when required
hereunder;
(b) failure to pay any taxes when due unless such taxes are being contested
in good faith by appropriate proceedings and with respect to which adequate
reserves have been provided on Borrowers' books;
(c) failure to perform under and/or committing any breach of this Agreement
any Ancillary Agreement, or any Guarantor Security Agreement or any other
agreement between any Borrower and Lender or ADC and Lender;
(d) occurrence of a default under any agreement to which any Borrower or
ADC is a party with third parties which has a material adverse affect upon any
Borrower's or ADC's business, assets, operations, prospects or condition
(financial or otherwise) including all leases for any premises where Inventory
or Equipment is located;
(e) any representation, warranty or statement made by any Borrower or ADC
hereunder, in any Ancillary Agreement, in any Guarantor Security Agreement any
certificate, statement or document delivered pursuant to the terms hereof or in
connection with the transactions contemplated by this Agreement or any Guarantor
Security Agreement should at any time be false or misleading in any material
respect;
(f) if any Guarantor attempts to terminate, challenges the validity of, or
its liability under any Guaranty Agreement or any Guarantor Security Agreement
or if any Guarantor shall die and Borrowers shall fail to provide Lender with a
replacement Guarantor acceptable to Lender within thirty (30) days of such
occurrence;
(g) should any Guarantor default in its obligations under any Guaranty
Agreement or any Guarantor Security Agreement or if any proceeding shall be
brought to challenge the validity, binding effect of any Guaranty Agreement, any
Guarantor Security Agreement or should any Guarantor or breach any
representation, warranty or covenant contained in any Guaranty Agreement or any
Guarantor Security Agreement or should any Guaranty Agreement or Guarantor
Security Agreement cease to be a valid, binding and enforceable obligation;
(h) an attachment or levy is made upon any Borrower's or ADC's assets
having an aggregate value in excess of $15,000, or a judgment is rendered
against a Borrower or ADC or any Borrower's or ADC's property involving a
liability of more than $15,000, which shall not have been vacated, discharged,
stayed or bonded pending appeal within thirty (30) days from the entry thereof;
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(i) any change in any Borrower's or ADC's condition or affairs (financial
or otherwise) which in Lender's opinion impairs the Collateral or the ADC
Collateral or the ability of such Borrower to perform its Obligations or the
ability of ADC to perform its obligations to Lender;
(j) any lien created hereunder, under any Ancillary Agreement or any
Guarantor Security Agreement for any reason ceases to be or is not a valid and
perfected lien having a first priority interest;
(k) if any Borrower shall (i) apply for, consent to or suffer to exist the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
(l) any Borrower shall admit in writing its inability, or be generally
unable to pay its debts as they become due or cease operations of its present
business;
(m) any Affiliate, any Subsidiary or any Guarantor shall (i) apply for,
consent to or suffer to exist the appointment of, or the taking possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business, (iii) make a general assignment for the benefit of creditors, (iv)
commence a voluntary case under the federal bankruptcy laws (as now or hereafter
in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws or
(viii) take any action for the purpose of effecting any of the foregoing;
(n) any Borrower or ADC directly or indirectly sells, assigns, transfers,
conveys, or suffers or permits to occur any sale, assignment, transfer or
conveyance of any assets of any Borrower or ADC or any interest therein, except
as permitted herein or in the Guarantor Security Agreement;
(o) any Borrower or ADC fails to operate in the ordinary course of
business;
(p) Lender shall in good faith deem itself insecure or unsafe or shall fear
diminution in value, removal or waste of the Collateral or the ADC Collateral;
(q) a default by any Borrower or ADC in the payment, when due, of any
principal of or interest on any indebtedness for money borrowed in excess of
$50,000 in the aggregate;
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(r) any (i) transfer of ownership of fifty percent (50%) or more of the
common stock of any Borrower or ADC or (ii) change in those Persons constituting
senior management of any Borrower or ADC except to the extent Lender is provided
at least thirty (30) days prior written notice of such change in senior
management and Lender does not notify Borrowing Agent in writing of its
objection to such change; or
(s) the indictment or threatened indictment of any Borrower, ADC, any
officer of any Borrower or any Guarantor under any criminal statute, or
commencement or threatened commencement of criminal proceeding against any
Borrower, ADC, any officer of any Borrower or any Guarantor pursuant to which
statute or proceeding penalties or remedies sought or available include
forfeiture of any of the property of any Borrower or any Guarantor.
19. Remedies. Upon the occurrence of an Event of Default pursuant to
paragraph 18(k) herein, all Obligations shall be immediately due and payable and
this Agreement shall be deemed terminated; upon the occurrence and continuation
of any other of the Events of Default, Lender shall have the right to demand
repayment in full of all Obligations, whether or not otherwise due. Until all
Obligations have been fully satisfied, Lender shall retain its security interest
in all Collateral. Lender shall have, in addition to all other rights provided
herein, the rights and remedies of a secured party under the UCC, and under
other applicable law, all other legal and equitable rights to which Lender may
be entitled, including without limitation, the right to take immediate
possession of the Collateral, to require Borrowers to assemble the Collateral,
at Borrowers' expense, and to make it available to Lender at a place designated
by Lender which is reasonably convenient to both parties and to enter any of the
premises of any Borrower or wherever the Collateral shall be located, with or
without force or process of law, and to keep and store the same on said premises
until sold (and if said premises be the property of a Borrower, such Borrower
agrees not to charge Lender for storage thereof), and the right to apply for the
appointment of a receiver for any Borrower's property. Further, Lender may, at
any time or times after default by any Borrower, sell and deliver all Collateral
held by or for Lender at public or private sale for cash, upon credit or
otherwise, at such prices and upon such terms as Lender, in Lender's sole
discretion, deems advisable or Lender may otherwise recover upon the Collateral
in any commercially reasonable manner as Lender, in its sole discretion, deems
advisable. The requirement of reasonable notice shall be met if such notice is
mailed postage prepaid to Borrowing Agent's address as shown in Lender's
records, at least ten (10) days before the time of the event of which notice is
being given. Lender may be the purchaser at any sale, if it is public. In
connection with the exercise of the foregoing remedies, Lender is granted
permission to use all of Borrowers' trademarks, tradenames, tradestyles,
patents, patent applications, licenses, franchises and other proprietary rights
which are used in connection with (a) Inventory for the purpose of disposing of
such Inventory and (b) Equipment for the purpose of completing the manufacture
of unfinished goods. The proceeds of sale shall be applied first to all costs
and expenses of sale, including attorneys' fees, and second to the payment (in
whatever order Lender elects) of all Obligations. Lender will return any excess
to Borrowers and Borrowers shall remain liable to Lender for any deficiency. In
addition to all other sums due to Lender, Borrowers shall pay Lender, for costs
and expenses incurred by Lender for internal collection efforts to obtain or
enforce payment of Receivables and the ADC Receivables, an amount equal to
fifteen percent (15%) of the net face amount of any Receivables and ADC
Receivables collected.
25
<PAGE>
20. Waiver; Cumulative Remedies. Failure by Lender to exercise any right,
remedy or option under this Agreement, any Ancillary Agreement or any Guarantor
Security Agreement or any supplement hereto or thereto or any other agreement
between any Borrower and Lender or delay by Lender in exercising the same, will
not operate as a waiver; no waiver by Lender will be effective unless it is in
writing and then only to the extent specifically stated. Lender's rights and
remedies under this Agreement will be cumulative and not exclusive of any other
right or remedy which Lender may have.
21. Application of Payments. Each Borrower irrevocably waives the right to
direct the application of any and all payments at any time or times hereafter
received by Lender from or on any Borrower's behalf and each Borrower hereby
irrevocably agrees that Lender shall have the continuing exclusive right to
apply and reapply any and all payments received at any time or times hereafter
against the Obligations hereunder in such manner as Lender may deem advisable
notwithstanding any entry by Lender upon any of Lender's books and records.
22. Depository Accounts. Any payment received by any Borrower on account of
any Collateral or any ADC Collateral shall be held by such Borrower in trust for
Lender and such Borrower shall and shall cause ADC to, promptly deliver same in
kind to Lender or deposit all such payments into a cash collateral account at
such bank as Lender may designate for application to payment of the Obligations.
Each Borrower shall and shall cause ADC to, also execute such further documents
as Lender may deem necessary to establish such an account and all funds
deposited in such account shall immediately be deemed Lender's property.
23. Lock Box Accounts. Each Borrower shall and shall cause ADC to, at
Lender's request, instruct all of its customers and account debtors to make such
payments on account of Receivables and ADC Receivables to an account under
Lender's dominion and control at such bank as Lender may designate. Each
Borrower shall and shall cause ADC to, also execute such further documents as
Lender may deem necessary to establish such an account and all funds deposited
in such account shall immediately be deemed Lender's property.
24. Revival. Each Borrower further agrees that to the extent any Borrower
makes a payment or payments to Lender, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if said payment had not been made.
25. Notices. Any notice or request hereunder may be given to Borrowing
Agent on behalf of Borrowers or Lender at the respective addresses set forth
below or as may hereafter be specified in a notice designated as a change of
address under this paragraph. Any notice or request hereunder shall be given by
registered or certified mail, return receipt requested, hand delivery, overnight
mail or telecopy (confirmed by mail). Notices and requests shall be, in the case
of those by hand delivery, deemed to have been given when delivered to any
officer of the party to whom it is addressed, in the case of those by mail or
overnight mail, deemed to have been given when deposited in the mail or with the
overnight mail carrier, and, in the case of a telecopy, when confirmed.
26
<PAGE>
Notices shall be provided as follows:
If to the Lender: Century Business Credit Corporation
119 West 40th Street
New York, New York 10018
Attention: Allen H. Vogel
Telephone: (212) 703-3500
Telecopier: (212) 703-3639
with a copy to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118
Attention: Miriam L. Cohen, Esq.
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
If to Borrowing
Agent or Borrowers: Agro Dynamics, Inc.
10 Alvin Court
East Brunswick, New Jersey 08816
Attention: Michael DeGiglio
Telephone: (732) 432-8200
Telecopier: (732) 698-1220
With a copy to: Giordano, Halleran & Ciesla
125 Half Mile Road
Middletown, New Jersey 07748
Attention: Kurt Anderson, Esq.
Telephone: (732) 741-3900
Telecopier: (732) 224-6599
26. Governing Law and Waiver of Jury Trial. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. LENDER SHALL HAVE THE RIGHTS AND REMEDIES OF A SECURED PARTY UNDER
APPLICABLE LAW INCLUDING, BUT NOT LIMITED TO, THE UNIFORM COMMERCIAL CODE OF NEW
YORK. EACH BORROWER AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING DIRECTLY OR
INDIRECTLY TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR ANY OTHER OBLIGATIONS
SHALL BE LITIGATED IN THE FEDERAL DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW
YORK OR, AT LENDER'S OPTION, IN ANY OTHER COURTS LOCATED IN NEW YORK STATE OR
ELSEWHERE AS LENDER MAY SELECT AND THAT SUCH COURTS ARE CONVENIENT FORUMS AND
EACH BORROWER SUBMITS TO THE PERSONAL
27
<PAGE>
JURISDICTION OF SUCH COURTS. EACH BORROWER WAIVES PERSONAL SERVICE OF PROCESS
AND CONSENTS THAT SERVICE OF PROCESS UPON SUCH BORROWER MAY BE MADE BY CERTIFIED
OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO BORROWING AGENT AT ITS
ADDRESS APPEARING ON LENDER'S RECORDS, AND SERVICE SO MADE SHALL BE DEEMED
COMPLETED TWO (2) DAYS AFTER THE SAME SHALL HAVE BEEN SO MAILED. THE PARTIES
HERETO WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BETWEEN
ANY BORROWER AND LENDER AND EACH BORROWER WAIVES THE RIGHT TO ASSERT IN ANY
ACTION OR PROCEEDING INSTITUTED BY LENDER WITH REGARD TO THIS AGREEMENT OR ANY
OF THE OBLIGATIONS ANY OFFSETS OR COUNTERCLAIMS WHICH IT MAY HAVE.
27. Borrowing Agency Provisions.
(a) Each Borrower hereby irrevocably designates Borrowing Agent to be its
attorney and agent and in such capacity to borrow, sign and endorse notes, and
execute and deliver all instruments, documents, writings and further assurances
now or hereafter required hereunder, on behalf of such Borrower or Borrowers,
and hereby authorizes Lender to pay over or credit all loan proceeds hereunder
in accordance with the request of Borrowing Agent.
(b) The handling of this credit facility as a co-borrowing facility with a
borrowing agent in the manner set forth in this Agreement is solely as an
accommodation to Borrowers and at their request. Lender shall not incur
liability to Borrowers as a result thereof. To induce Lender to do so and in
consideration thereof, each Borrower hereby indemnifies Lender and holds Lender
harmless from and against any and all liabilities, expenses, losses, damages and
claims of damage or injury asserted against Lender by any Person arising from or
incurred by reason of the handling of the financing arrangements of Borrowers as
provided herein, reliance by Lender on any request or instruction from Borrowing
Agent or any other action taken by Lender with respect to this paragraph 27.
(c) All Obligations shall be joint and several, and each Borrower shall
make payment upon the maturity of the Obligations by acceleration or otherwise,
and such obligation and liability on the part of each Borrower shall in no way
be affected by any extensions, renewals and forbearance granted by Lender to any
Borrower, failure of Lender to give any Borrower notice of borrowing or any
other notice, any failure of Lender to pursue to preserve its rights against any
Borrower, the release by Lender of any Collateral now or thereafter acquired
from any Borrower, and such agreement by each Borrower to pay upon any notice
issued pursuant thereto is unconditional and unaffected by prior recourse by
Lender to the other Borrowers or any Collateral for such Borrower's Obligations
or the lack thereof.
28. Subrogation. Notwithstanding any payment or payments made by any
Borrower hereunder, or any setoff or application of funds of any Borrower by
Lender, no Borrower shall be entitled to be subrogated to any of the rights of
Lender against any other Borrower or against any Collateral or guarantee or
right of offset held by Lender for the payment of the Obligations, nor shall any
Borrower seek or be entitled to seek any contribution or reimbursement from any
other Borrower in respect of payments made by such Borrower
28
<PAGE>
hereunder, until all amounts owing to Lender by Borrowers on account of the
Obligations are paid in full and the Loan Agreement had been terminated. If,
notwithstanding the foregoing, any amount shall be paid to any Borrower on
account of such subrogation rights at any time when all of the Obligations shall
not have been paid in full and the Loan Agreement shall not have been
terminated, such amount shall be held by such Borrower in trust for Lender,
segregated from other funds of such Borrower, and shall, forthwith upon and (in
any event within two (2) business days of) receipt by such Borrower, be turned
over to Lender in the exact form received by such Borrower (duly endorsed by the
undersigned to Lender, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as Lender may determine.
29. Limitation of Liability. Each Borrower acknowledges and understands
that in order to assure repayment of the Obligations hereunder Lender may be
required to exercise any and all of Lender's rights and remedies hereunder and
agrees that neither Lender nor any of Lender's agents shall be liable for acts
taken or omissions made in connection herewith or therewith except for actual
bad faith.
30. Entire Understanding. This Agreement and the Ancillary Agreements
contain the entire understanding between Borrowers and Lender and any promises,
representations, warranties or guarantees not herein contained shall have no
force and effect unless in writing, signed by Borrowers' and Lender's respective
officers. Neither this Agreement, the Ancillary Agreements, nor any portion or
provisions thereof may be changed, modified, amended, waived, supplemented,
discharged, cancelled or terminated orally or by any course of dealing, or in
any manner other than by an agreement in writing, signed by the party to be
charged.
31. Severability. Wherever possible each provision of this Agreement or the
Ancillary Agreements shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement or the
Ancillary Agreements shall be prohibited by or invalid under applicable law such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
thereof.
32. Captions. All captions are and shall be without substantive meaning or
content of any kind whatsoever.
33. Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
34. Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
35. Publicity. Upon Borrowing Agent's written consent, Borrowers hereby
authorize Lender to make appropriate announcements of the financial arrangement
entered into by and between Borrowers and Lender, including, without limitation,
announcements which are commonly known as tombstones, in such publications and
to such selected parties as Lender shall in its sole and absolute discretion
deem appropriate.
29
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
AGRO DYNAMICS, INC.
By:_____________________________________
Title: Senior Vice President
ECOSCIENCE PRODUCE SYSTEMS CORPORATION
By:______________________________________
Title: Senior Vice President
CENTURY BUSINESS CREDIT CORPORATION
By:_______________________________________
Title:_____________________________________
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
AGRO DYNAMICS, INC.
By:_____________________________________
Title: Senior Vice President
ECOSCIENCE PRODUCE SYSTEMS CORPORATION
By:______________________________________
Title: Senior Vice President
CENTURY BUSINESS CREDIT CORPORATION
By:_______________________________________
Title:_____________________________________
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
AGRO DYNAMICS, INC.
By:_____________________________________
Title: Senior Vice President
ECOSCIENCE PRODUCE SYSTEMS CORPORATION
By:______________________________________
Title: Senior Vice President
CENTURY BUSINESS CREDIT CORPORATION
By:_______________________________________
Title:_____________________________________
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
AGRO DYNAMICS, INC.
By:_____________________________________
Title: Senior Vice President
ECOSCIENCE PRODUCE SYSTEMS CORPORATION
By:______________________________________
Title: Senior Vice President
CENTURY BUSINESS CREDIT CORPORATION
By:_______________________________________
Title:_____________________________________
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. (a) General Definitions.............................................................................1
(b) Accounting Terms................................................................................8
(c) Other Terms.....................................................................................8
2. Revolving Credit Advances................................................................................8
3. Repayment of the Revolving Credit Advances...............................................................9
4. Procedure for Revolving Credit Advances.................................................................10
5. Interest and Fees.......................................................................................10
(a) Interest.......................................................................................10
(b) Fees...........................................................................................11
(i) Minimum Loan Fee......................................................................11
(ii) Closing Fee...........................................................................11
(iii) Collateral Evaluation Fee.............................................................11
(iv) Collateral Monitoring Fee.............................................................11
(v) Minimum Default Loan Fee..............................................................11
(vi) Overadvance Fee.......................................................................11
(vii) Financial Information Default.........................................................12
6. Security Interest.......................................................................................12
7. Representations Concerning the Collateral...............................................................12
8. Covenants Concerning the Collateral.....................................................................13
9. Collection and Maintenance of Collateral and Records....................................................14
10. Inspections.............................................................................................15
11. Financial Information...................................................................................15
12. Additional Representations, Warranties and Covenants....................................................16
13. Power of Attorney.......................................................................................21
14. Expenses................................................................................................21
15. Assignment By Lender....................................................................................22
16. Waivers.................................................................................................22
17. Term of Agreement.......................................................................................22
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
18. Events of Default.......................................................................................23
19. Remedies................................................................................................25
20. Waiver; Cumulative Remedies.............................................................................26
21. Application of Payments.................................................................................26
22. Depository Accounts.....................................................................................26
23. Lock Box Accounts.......................................................................................26
24. Revival.................................................................................................26
25. Notices.................................................................................................26
26. Governing Law and Waiver of Jury Trial..................................................................27
27. Borrowing Agency Provisions.............................................................................28
28. Subrogation.............................................................................................28
29. Limitation of Liability.................................................................................29
30. Entire Understanding....................................................................................29
31. Severability............................................................................................29
32. Captions................................................................................................29
33. Counterparts............................................................................................29
34. Construction............................................................................................29
35. Publicity...............................................................................................29
</TABLE>
ii
<PAGE>
EXHIBITS
Exhibit 1(A) - Permitted Liens
Exhibit 12(a) - States of Incorporation
Exhibit 12(j) - Licenses, Patents, Trademarks and Copyrights
Exhibit 12(l) - Inventory Locations
Exhibit 12(m) - Permitted Indebtedness
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Company's Quarterly Report on Form 10-Q for the
quarter ended July 4, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-END> JUL-04-1999
<CASH> 841
<SECURITIES> 0
<RECEIVABLES> 5,259
<ALLOWANCES> (737)
<INVENTORY> 4,486
<CURRENT-ASSETS> 11,922
<PP&E> 69,822
<DEPRECIATION> (7,543)
<TOTAL-ASSETS> 88,571
<CURRENT-LIABILITIES> 101,154
<BONDS> 82,800
0
0
<COMMON> 126
<OTHER-SE> (15,830)
<TOTAL-LIABILITY-AND-EQUITY> 88,571
<SALES> 32,696
<TOTAL-REVENUES> 32,696
<CGS> 31,357
<TOTAL-COSTS> 31,357
<OTHER-EXPENSES> 7,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,092)
<INCOME-PRETAX> (10,833)
<INCOME-TAX> 5
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,686)
<EPS-BASIC> (0.85)
<EPS-DILUTED> (0.85)
</TABLE>
